The Federal Open Market Committee (FOMC) is meeting in the US to decide on interest rates, with the CME Fedwatch survey reporting an 87 per cent chance of “no change”.
The FOMC, which meets Tuesday and Wednesday, January 28 and 29, will decide whether to cut interest rates, raise them, or leave them unchanged. The market consensus is that rates will remain unchanged, as the Fed has signalled this is likely.
An unexpected rate cut would be a boost to markets, while an increase would be regarded as a sell sign for equities. As the Federal Reserve doesn’t like to give the market too many shocks, the prediction is that the interest rate is likely to remain unchanged on this occasion.
It is the first rate-setting meeting of the year, the Federal Reserve having made three cuts in 2019. However, rates may remain steady in 2020 as the US is now in its election year and the Fed is unlikely to want to stifle any economic growth.
“After 131 interest rate cuts from central banks around the world in 2019 (against just 21 increases) markets have already seen five monetary authorities reduce headline borrowing costs in their countries in January,” said Russ Mould, AJ Bell Investment Director.
“While the US Federal Reserve and the Bank of England are not facing the sort of difficulties which have prompted Kenya, Malaysia, North Macedonia, South Africa and Turkey to cut rates, neither is expected to give any indicator that borrowing costs are going to rise in a hurry when they make their latest monetary policy decisions on Wednesday and Thursday respectively.
The CME Fedwatch survey currently puts an 87 per cent chance on no change in interest rates from the US central bank at this meeting but the same survey puts a 75 per cent chance on at least one cut, and just a three per cent chance of at least one increase, by the year end.
“Economists will also be watching for comments on the central bank’s intervention in the overnight bank funding (repo) market since the autumn,”Mr Mould said. “Fed Chair Jay Powell continues to swear blind that this is ‘Not QE4’ but whether it is Quantitative Easing or not share prices appear have feasted on the cheap cash that the Fed has been injecting into the markets since the autumn.”