Friday, January 4, 2019

Will the Fed raise rates in 2019?

NEW YORK–How many times will the Fed raise interest rates in 2019? It’s a question of keen interest to credit unions, and the answer according to many investors is zero—the Fed will not act.
The current Fed funds rate is set to a range between 2.25% and 2.5%.The reason, according to analysis by the Wall Street Journal, is declining confidence in U.S. economic expansion, which is expected to slow over the next year even as the economy remains strong.
The Federal Open Market Committee voted to raise rates at its December meeting, finishing the year with a slow but steady effort to nudge rates upward. The rate increases have been met with criticism by President Trump.  Many analysts, including inside credit unions, had predicted the Fed would raise rates twice more in 2019. Now, some are saying not so fast.
Fed Funds Futures Flat
“Fed-funds futures, which investors use to bet on the direction of Fed policy, on Wednesday showed a 91% probability that the central bank’s policy makers will finish the year with interest rates at or below their current level,” the Journal reported. “That is a reversal from early November, when futures prices indicated a 90% probability that rates would end 2019 higher than they are now. Futures even show a small chance that rates will fall this year—raising the possibility of a market shock or economic downturn by year’s end.”
The yield on the 10-year Treasury note also recently fell below 3%.
“In the two weeks since Fed officials last met, stocks have fallen, yields on corporate debt have widened relative to those on safer government bonds and other measures of financial conditions have tightened considerably,” the Journal reported. “By raising costs for businesses and households to borrow and invest, tighter conditions could slow growth more than central-bank officials anticipated.”

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