Second of Four Predicted Rate Hikes Expected in June
With rising inflation underway, investors are anticipating yet another interest rate hike from the U.S. Federal Reserve in June—the second of as many as four increases that are predicted in 2018.
The Fed's first lending rate increase came in March when it grew by a quarter percentage point from 1.5% to 1.75%, Reuters reported. Borrowing costs began increasing in December 2015, only to be lifted once in 2016 and then three times in 2017. Movement is currently anticipated in June and September, according to CNBC, with a 37% chance of a fourth increase expected before the year is out.
"The market understands that more than four is quite unlikely," New York Fed President William Dudley said in the CNBC report, "because that would no longer be a gradual path of monetary policy tightening. It would also imply that the Fed was going to tighten by 50 basis points at a press conference meeting or go meeting to meeting. So, I think that the market sort of sees three as possible and four as possible, but five or six seems to be quite unlikely."
NACM Economist Chris Kuehl, Ph.D., said the Fed's desire to reach a 2% "normal level" of inflation was sought out over the last decade. Too much and too little inflation is damaging to the economy, he said, while finding a middle ground "greases the economy's wheels."
"Deflation is what mired Japan in slow growth mode for over two decades," Kuehl noted. "The U.S. was heading that way for a while as well. When there is no inflation at all, there is no room for producers to raise their prices and make more money. There is, therefore, no ability to buy new machines or hire people."
CNBC stated that the Fed is expected to make an announcement on Wednesday, May 2 at 2 p.m.
-Andrew Michaels, editorial associate