Will the US Fed hike interest rates?

The US Federal Reserve's Open Market Committee (FOMC) is meeting Tuesday and Wednesday to discuss monetary policy, with its decision on the Fed funds rate set to be announced tomorrow.

Globally, investors are closely watching the outcomes of the Fed meeting for clues on the path of interest-rate policy, if the market’s wild swings in the run-up to the meeting are any indication.

A couple of days back, the dollar rose to a 19-month high after data showed U.S. consumer spending appeared to gather momentum while industrial production rebounded in November. Commodities, especially oil and gold, are bearish. Last week, gold fell to its lowest in more than a week.

Also Read: US Fed hikes key rates, signals additional increase in 2018

In the US, the core CPI inflation edged up to 2.2 percent in November from 2.1 percent in October, though the headline rate fell to 2.2 percent from 2.5 percent. In EU, the ECB confirmed that it would be pulling the plug on its QE program this month.

Given this background, Argaam has compiled views of a few analysts on the likely action of the US Fed:

Emirates NBD

“While the market-implied probability of a hike to an upper bound of 2.5 percent remains high, it has fallen from over 70 percent at the close of last week to 64.9 percent as the meeting begins,” noted Daniel Marc Richards, MENA Economist, Emirates NBD in his report on Tuesday.

The primary interest will be the language in the communiqué, and what signals are given with regards rates in 2019, he added.

National Bank of Kuwait

Latest US data are unlikely to have a major effect on Fed decision making ahead of its policy announcement this Wednesday; markets are pricing in a 77 percent chance of a rate hike but no more than one hike in 2019, the NBK noted in its research report.

Also See: UAE, Bahrain raise interest rates after Fed hike

Kitco.com

Most expect the FOMC to raise interest rates by 0.25% on Wednesday afternoon, at the conclusion of their meeting, said Jim Wyckoff, Senior Analyst, Kitco.com.

ADS Securities

Given the bearish tilt in both domestic and external market conditions the Fed is very likely to signal a slowdown in its hiking cycle, potentially hinting at one or two hike increases in 2019, believes Konstantinos Anthis, Head of Research at ADS Securities.

FXTM

A final key rate hike for 2018 is almost a done deal, but what is more important is how the Fed’s dot plots shift in 2019 and beyond, said Hussein Sayed, Chief Market Strategist at FXTM.

He said if US monetary policymakers are seeing a serious risk of economic slowdown, those dots should be pulled downwards.

“Fed Chairman Jerome Powell is likely to be faced with many questions about the threat of a US economic slowdown especially given the inversion of the yield curve recently.

Investors need to be reading between the lines to understand what the Fed’s position is at this stage,” he noted.

Century Financial Brokers

Markets are awaiting the Federal Open Market Committee (FOMC) meeting on Dec. 18-19, where the US central bank is widely expected to raise interest rates. The focus, however, would be on the outlook for 2019, the brokerage firm noted in its latest weekly report.

Write to Sunil Kumar Singh at sunil.kumar@argaamplus.com