fb-pixelFederal Reserve likely to wait for rate increase, but for how long? - The Boston Globe Skip to main content

Federal Reserve likely to wait for rate increase, but for how long?

Janet Yellen, chair of the Federal Reserve. Susan Walsh/AP/file 2016

The Federal Reserve raised the key interest rate from near zero to about a quarter point last December for the first time since the economic crisis. Since then investors, policy makers, and economists have been waiting, and waiting, to see when they’ll do it again.

The Fed’s Open Market Committee meeting on Wednesday could signal whether another rate increase is likely in June, or if the waiting will go on.

Here are four things to watch when the policy-setting group releases its statement on Wednesday:

1. How strongly will the committee suggest a June rate increase? Fed officials have been very vocal about their fear of startling markets with a rate increase, so the central bank has tended to telegraph its intention months ahead. Federal Reserve Bank of Boston President Eric Rosengren, a voting member of the open market committee, has made speeches in recent weeks warning that investor expectation for just one or no rate hike this year, are likely off.

2. The state of the economy. Does the Fed think that the economy has revved up enough to raise rates again? Concerns about the global slowdown, falling oil prices, and market volatility earlier this year delayed the Fed’s initial plans to raise rates four times in 2016. But oil prices have ticked up and the US labor market has improved in recent months. But business investment has been stagnant. So will the Fed say that the risks are more balanced, offering an opening for a June rate increase? Or will the Fed be more specific, as it was last October, when it said an increase could be considered at its next meeting?

Advertisement



3. Inflation and wage growth. While unemployment has been improving and recent data shows that more people who were previously sidelined are returning to the labor market, wage growth hasn’t picked up as much and inflation is still trailing the Fed’s 2 percent target. Does the Fed think that as oil prices rise and wages tick up, inflation will improve, and at what pace?

Advertisement



4. It’s all about the data. Fed officials have repeatedly said their decisions will be data-driven and there will be several economic reports between now and June. First quarter economic growth data will be released later this week, after the meeting. Two more employment reports will be released before the June meeting. And investors will provide some indication of the impact of the June vote in the United Kingdom to leave the European Union.


Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.