WASHINGTON—The Federal Open Market Committee (FOMC) begins its two-day meeting today, with one CU economist is saying he would be “shocked” if the Fed didn’t move to boost rates. The Fed is widely expected to approve of another quarter-point interest rate hike.
The FOMC last raised the federal funds target rate by a quarter-point in December to a range of 1.25% to 1.5%. While the committee declined to raise rates in January, NAFCU Chief Economist and Vice President of Research Curt Long said February's jobs report kept the Federal Reserve on track to raise rates this month.
Also, during the FOMC's December meeting, the committee projected three quarter-point rate hikes this year; however, recent comments from Federal Reserve Chairman Jerome Powell indicate the possibility of four rate hikes, Long said.
Similarly, Dwight Johnston, chief economist for the California Credit Union League, said it “would be a shock if the Federal Reserve does not raise short-term interest rates” at this week’s meeting, and then at least two more times this year.
“What could cause the Fed to slow its course of tightening?” asked Johnston in a statement released by the league. “The biggest risk would be an escalation in foreign trade actions by the United States and retaliation by global partners. This would threaten the economy, which is expected to perform well this year driven by congressional tax reform. But on the flipside, we could get more than three interest-rate increases this year if we see a surge in inflation. The current year-over-year growth in core Consumer Price Index (CPI) is 1.8%, but that could rise. The Fed would tolerate 2.5% CPI growth without ramping up tightening, but an approach toward 3% would cause the Fed to step up the pace. Under this scenario the Fed would most likely move rates four times this year and prepare for four next year.”
Johnston said it’s his view that three or even four interest rate hikes by the Fed in 2018 would “not have much of an effect on most consumers’ use of credit cards for purchases or loans to finance automobiles.”