US Fed's Interest Hike In June ? 3 Factors To Decide.
By the time Thursday comes around, it would be June already and incidentally, the last calendar month of Q2 2023.
Attention will once again turn towards the next FOMC meeting, in Jun 13 - 14.
On Fri, 26 May, US interest rate was momentarily under the spotlight after the International Monetary Fund (IMF) published an “unexpected” outlook of US. (See below).
Following IMF’s comment, the probability of a June 2023 interest hike rose to 61.8%.
Fortunately, it has since “dipped” marginally.
As of Tue, 30 May, probability of a “5.25% to 5.5%” interest band stands at 56.1% (See below).
US Interest Rate (currently stands at 5.00% - 5.25%)
US Interest hike : 2022 to 2023
The Fed Has Raise Interest 10 Times Between 2022 & 2023:
The first hike was on 16 Mar, 2022
The most recent hike was on 3 May, 2023.
After the May, 2023 adjustment, Wall Street including Fed’s chair Mr Powell looked to June as a “freeze period” to allow the cumulative interest hikes to work its “magic”.
What US Official data is revealing ?
Examining “past & present” data with eyes wide opened, one would conclude that the economic reactions that the Fed is waiting for, is unavailable.
(1) Data - downwards trending.
(a) US Jobs opening & Labour turnaround surveys (JOLTs). Ideal!
JOLTs - falling trend - ideal!
(b) Weekly jobless claims. Not ideal!
Falling claims - not ideal!
(c) Consumer Price Index (CPI). Ideal!
Monthly falling CPI - ideal
(d) Purchasing Manager Index (PMI). Ideal!
Falling PMI - ideal !
(2) Data - mixed trending.
(a) Non-Farm payroll. Mixed outcome!
Non-farm payroll - Mixed results vary month to month
(b) Personal Consumption Expenditure (PCE). Not ideal!
Mixed PCE - not ideal !
(3) Producer Price Index (PPI). Mixed outcome!
Mixed PPI - not ideal !
(3) Data - upwards trending.
(a) Gross Domestic Product (GDP). Ideal!
Rising GDP - ideal !
With official data not showing significant slowdown in US, the Fed’s job to arrest inflation has become more challenging.
The Fed cannot hike interest indefinitely without risking a domestic fallout in its economy. ***Still recall the catalyst, that triggered the collapse of 3 US “regional” banks? Weren’t they a “victim” of the multiple interest hikes?
It also cannot raise interest and ignore the global repercussions to “less developed” countries.
The balancing act is proving to be a daunting task; even for the Fed.
Against a backdrop of “uncertainty” - $Bank of America(BAC)$ made a “bold” prediction that an interest hike is plausible; when 3 conditions are fulfilled.
Although BofA reaffirms its expectation that a “June” interest hike by the Fed is unlikely.
Nevertheless, it strongly believes that an interest hike in the near future is imminent.
The 3 Deciding Factors:
Strong economic data. Not there!
Increase in Debt ceiling. Coming to a closure soon, hopefully!
Subdued regional bank stress. Capital outflow is still happening. Flow yet to stop completely. (See below).
$30 Billion outflow betw 10 May & 17 May
With only item #2 looks set to wrap up by this week, is it too early to count the chickens before they are hatch?
Wall Street seems to be gearing for the “bad” news though as there are articles popping up since Sun, 28 May as usual predicting what the Fed would do during June’s FOMC meeting. Enclosed is one such excerpt.
On a more “sombre” note, we all know how market would react in the event of an “unexpected” hike won’t we? On that note…
Let the guessing game begins……
Do you think the 3 factors are sufficient to help the Fed decide whether to hike interest or otherwise?
Do you think the Fed will raise interest rate by another 0.25% in mid June?
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The Fed is likely to pause its rate hikes in mid-June in order to assess the impact of its previous rate hikes on inflation.
The Fed will likely continue to raise interest rates in the future, but it will likely do so at a slower pace.
The Fed has already raised interest rates by 75 basis points in recent months in an effort to combat inflation.
It is likely that the Fed will raise interest rates in June 2023. However, the size of the rate hike is uncertain.