Federal Reserve officials voted to leave the key overnight interest rate unchanged at the just concluded two-day policy meeting. The central bank left the benchmark rate target at 0.75% after noting the economy had slowed down in the first three months of the year.
June Rate Hike Talk
The Fed’s statement did not leave any surprises for stocks, and bond yields edged slightly higher. The Fed officials in their statement noted they don’t expect the slowdown experienced in the first quarter to last much longer. The fact that they indicated the weakness experienced in the first quarter won’t affect their intentions to raise rates going forward all but helped affirm talk of a rate hike in June.
While the Fed indicated that business investment has firmed, it failed to address the issue of its $4.5 trillion balance sheet in which it stores its bonds portfolio. In the past, Fed officials have indicated that reinvesting proceeds from the holdings would amount to a series of rate hikes.
Talk of a rate hike in June helped provide support for the US dollar which soared in the market having been on the receiving end in recent weeks. Gold, SPDR Gold Trust (ETF) (NYSEARCA:GLD) on the other hand, was on the receiving end consequently tanking to season lows on the dollar rising.
Rate Hike Expectations
Initial estimates indicate that 70% of traders expect the Federal Reserve to hike interest rate in June, up from 60% before the latest Fed policy statement.
“The language was just really to acknowledge some of the slowdown and weakness that has been seen, but also to send the message that it’s not enough to deter them from their plans. June is on the table” for the next rate hike,” said Craig Bishop, income strategist at RBC Wealth Management.
The U.S central bank has raised interest rates twice since late last year. Fed officials indicated in March that two more hikes were on the way with the same dependent on economic data. So far, nothing concrete from the policy front expected to bolster GDP growth has been forthcoming.
Upon assuming the presidency early in the year, it was expected that Donald Trump would initiate infrastructure spending and tax cuts to steer the economy. So far that has not been forthcoming, the administration having switched its attention to repealing the Affordable Care Act and replacing it with a different centralized government healthcare plan.