Experts expect Fed to keep interest rates unchanged

/By Azernews/

By Gulgiz Dadashova

The U.S. Federal Reserve is believed to keep the short-term interest rates unchanged at end of March 16 meeting, but there are also signals that a rate hike is not too far off.

The U.S. central bank, which lifted borrowing costs in December 2015 for the first time in nearly a decade, now it is expected to keep the figure unchanged in a range of 0.25 percent to 0.5 percent. Since December, the Fed is signaling few interest rate hikes in 2016 as it continues to monitor the volatile oil prices and uncertainty in Chinese economy.

Economists expect the next rate hike to come before late June, followed by one before the end of the year, according to a recent Reuters report. About 60 percent of economists expect the next rate hike to come by mid-year, but not on Tuesday meeting.

The effects of a Fed rate rise are transmitted not just through to banks and businesses in the U.S,. but also have an impact on the global economy.

John Hardy, head of FX Strategy / Saxo Bank also does not believe in probability of a Fed rate hike.

“We see the focus swing to Federal Open Market Committee meeting where the market is looking at very low odds of a Fed rate hike (about five percent) while we might suggest the odds are 25 percent or higher,” he told Trend.

The expert said that after all, every issue dogging the markets and therefore the likelihood of Fed rate hikes has eased and eased dramatically.

“There's still a low probability of a Fed hike, but it's possible and we at least lean to the view that the Fed keeps the path of anticipated hikes higher than the market is currently pricing – if this view is realized, it might be the most supportive of the greenback versus commodity and risky currencies,” the expert said.

Adjusting the federal funds rate - the rate banks charge each other for short-term loans - affects other short term rates paid by firms and households. These movements also have knock-on effects on long-term rates, including mortgages and corporate bonds. Changes in long-term rates will have an influence on asset prices, including the equity market, FT explains.

Azerbaijani expert Farhad Amirbayov also claims that the U.S. Federal Reserve has no important reasons to increase the key interest rate 16.

“Honestly, for now I adhere to a very discreet opinion in this issue,” Amirbayov told Trend. “I think that during the year the main interest rate of the reserve system will gradually grow, but this process will be slow. At the moment there has been no significant improvement of either the US or global economy.”

He said that in general, the US Federal Reserve System is unlikely to raise its key interest rate to the desired level. The expert added that major changes may occur after the presidential election in the U.S.

He noted that if the interest rates increase sharply, the majority of financial institutions will go bankrupt.

But if those who want to keep everything unchanged gain a victory, then the interest rates will unlikely rise and even if they increase, it won’t be in significant amount, he said.

Gold typically loses its value when interest rates climb, while the bond market looks more exposed. Highly rated debt is trading with very low yields, that is they are vulnerable to even a modest rise in Fed interest rates.