US Fed likely to keep interest rates steady

"My expectation is that they remain positioned to hike rates in June", Tim Duy, an economist at the University of OR and close Fed watcher, told AFP. Markets are more confident of seeing a rate hike in June, when the Fed is scheduled to hold a news conference where it can provide more details on its decision.

"We don't expect that will prevent the Fed from hiking interest rates again at the June meeting, at least not as long as employment growth rebounds in April and May", said Paul Ashworth, chief USA economist at Capital Economics in Toronto.

Slow economic growth during the first quarter is likely to prove "transitory" and with gradual adjustments in the stance of monetary policy inflation will stabilise around 2.0% over the medium-term, they added.

Economists do not expect the USA central bank, the Federal Reserve, to raise the benchmark interest rate on Wednesday at the end of its two-day policy meeting, but to wait until June. Job gains were solid, on average, in recent months, and the unemployment rate declined.

Almost eight years after the recession ended, the unemployment rate is a low 4.5 percent.

But Fed played down the significance of weak consumer spending, saying "the fundamentals underpinning the continued growth of consumption remain solid".

They also said inflation is running close to their goal of 2 percent. In light of that weak report, some are asking if the Fed will hold off on raising interest rates again this year.

"The interest rates on credit cards will only get more expensive", he said.

United States central bankers were unusually explicit in their statement, indicating that a disappointing first quarter, in which the economy grew at an annualised rate of 0.7 per cent, would not knock the committee off its plan to raise rates two more times this year after a hike in March.

Consumers continue to hunker down as well: The savings rate increased to the highest level since last August in April. As of Wednesday morning, investors placed a roughly 70% probability of at least one rate increase by June.

While no rate hike is expected as policymakers gauge the effect of their quarter-point rate hike in March, the third increase of this tightening cycle that started in December 2015, all eyes will be on how officials interpret recent unevenness in the economic data. Higher interest rates could draw more investors back to the U.S. and spark an outflow of capital from emerging markets such as SA.

The Fed statement showed some misgivings about an economy that grew just 0.7 percent in the first quarter.

The Fed also said that it expected the first-quarter's slow economic growth to speed up later in the year. Economists will be watching the data closely to see whether lackluster reports on the economy that have emerged in the last month are evidence of a sustained trend.

Investors are also looking at Nigeria where the naira is trading on the black market nearly on par with a special rate for investors, as the central bank has stepped up United States dollar sales.

10-year +3.6 bps @ 2.316%.

On Friday, the federal government will release highly anticipated figures on the number of new jobs created in the country in April.

  • Zachary Reyes