The Federal Reserve May Have Just Slammed the Brakes On Interest Rates
The Federal Reserve may be more nervous about the Donald Trump economy than it looks.
The Fed left interest rates unchanged on Wednesday at the end of a two-day policy meeting, as expected. What was unexpected was the fact that the U.S. central bank gave no hint of when it will next raise rates again, after raising them a single time in 2016 in December. The market had expected the Fed to indicate that future rate hikes were on the way.
But the lack of any statement about when the next one would happen moved markets that trade in future interest rates hikes, causing the price of so-called Fed funds futures to drop. That suggests traders now see less chance of the Fed raising rates three times in 2017, which Fed officials had said in December they thought would be appropriate.
Traders are still pricing in two rate hikes this year, based on the price of Fed funds futures contracts traded at CME Group (CME) Chicago Board of Trade. Back in December, at the last Fed meeting, there had been some concerns among Fed governors that uncertainty created by President Trump and his potential policy moves could drain business confidence and slow growth. But at that point, the Fed chair Janet Yellen and the other members of the interest rate-setting committee seemed to side with the idea that Trump’s policies would do more to help the economy than hurt it.
The Fed did express some optimism on Wednesday, saying in its statement that “measures of consumer and business sentiment have improved of late.” But after 13 days of Trump’s actual presidency, the Fed’s confidence in the Trump economy seems less certain.
Reuters contributed to this story.