Eyes on Critical Meeting: Fed May End Rate Hikes

Markets are locked in on the critical US Federal Reserve (Fed) interest rate decision due to be announced on the evening of May 3rd. In addition, the interest rate decisions of the European and Norwegian central banks will be important events to watch this week.

Fed executives are preparing to continue their year-long policy of raising interest rates this month to beat stubborn inflation as risks to the US economy mount. However, according to experts, after this increase, the Fed could interrupt the cycle.

Markets are pricing in an 85 percent probability that the Fed will raise interest rates by 25 basis points at its meeting. Traders are predicting that the May rate hike will be the last rate hike of the central bank’s fastest tightening cycle since the 1980s. Expectations are that interest rates will stay flat in June.

THE BANKING CRISIS IS AGAIN

First Republic Bank’s first-quarter balance sheet, released early last week, revealed that the bank’s deposits were down 40.8 percent compared to the end of last year, despite $30 billion in support from big US banks, post-balance sheet stocks collapsed.

Developments in the banking sector are among those raising the possibility that the Fed will halt interest rate hikes.

MAY BE THE LAST INCREASE

Bloomberg economists Anna Wong, Stuart Paul, Eliza Winger and Jonathan Church said in a note that the final rate hike is likely to come at next week’s meeting. The note included the following:

“Despite the current turmoil in the banking system, there is a strong possibility that the Fed will raise interest rates by 25 basis points to 5.25 percent in the May 3 decision. Also, signs indicate that this will be the last increase for a while.

The next phase of the adjustment cycle will be to monitor whether inflation has a downward trend while rates are maintained at this level.

EXPLANATIONS TO FOLLOW

In addition to the Fed’s interest rate decision, Fed Chairman Jerome Powell’s remarks will also be very important. Clues for future monetary policy will be closely watched as they will have an impact on the direction of the markets.

Despite the weakening of economic activity in the US, the risk of inflation remains alive, and there are concerns that the measures to be taken by the Fed in the area of ​​the fight against inflation could increase the risk of recession.

Fed officials raised interest rates by 75 basis points four times last year. The bank had reduced the pace of rate hikes to 50 basis points in December and 25 basis points in February. The March meeting, which took place after the failure of Silicon Valley Bank and two other US banks, also increased by 25 basis points.

THE ECB WILL BE WATCHED IN EUROPE

On the other hand, the inflation data announced in Europe gave mixed signals. In addition to the Fed’s interest rate decision next week, the European Central Bank’s (ECB) monetary policy decisions and ECB President Christine Lagarde’s verbal guidance on Thursday were the focus of investors.

While projections that the ECB will raise interest rates by 75 basis points in total through September and end the rate hike cycle are growing stronger, uncertainties about the size of the steps are expected to continue for a time.