Could the Fed reduce planned rate increases?

by Ryan Smith15 Apr 2016
The Federal Reserve plans to raise rates twice this year, the first time likely in June – but a growing number of economists wonder if both planned rate hikes will happen.

Right now, most economists believe the Fed is likely to pass on a rate hike at its meeting later this month, instead waiting until June to raise the federal funds rate to 0.50-0.75%, according to a Reuters report. Another rate rise is expected before year’s end, bringing the federal funds rate to 0.75-1.0%.

But according to a Reuters poll, a “growing minority” of economists – about a quarter of those surveyed – are now predicting just one rate hike this year. That’s up from 15% a month ago. A weak start to the year and lower-than-expected inflation mean a rate hike may not happen in June, some think.

“It is certainly an uphill climb to get to a June rate hike,” Sam Bullard, senior economist at Wells Fargo, told Reuters. “A lot of things do have to go right between now and then.”

And while job growth has been encouraging, wage growth and consumer inflation haven’t been as impressive. Economists have consistently downgraded their forecasts for 2016, according to Reuters. Those surveyed this month expect the economy to expand by 2.1% this year. That’s down from a forecast for 2.1% growth in March.

All that makes two rate cuts somewhat less likely. Thomas Costerg, senior economist at Standard Chartered Bank, told Reuters he was expecting only one rate cut this year.

“We see the economy shifting down in the second half of the year,” he said. “…Softening consumer spending and lack of wage growth are key hurdles for the Fed to hike rates.”


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