Fed Decision Looms as Brexit Becomes More Uncertain
Fed funds futures, a tool used to predict market expectations of changes in monetary policy, indicate just a 2% chance the Fed will hike rates at the conclusion of this month’s meeting, and a 21% chance of a rate rise at the July meeting.
The 41 CNBC’s survey respondents, who include economists, fund managers and analysts, unanimously think Fed policymakers will leave rates unchanged at current levels when they meet this week.
Survey respondents still anticipate one or two rate hikes this year, with the federal funds rate reaching 0.74 percent by year-end. A majority does not see the Fed allowing its balance sheet to decline until after May 2017, two months later than the previous survey. The Fed is not expected to reach its terminal rate, at 2.64 percent, until the fourth quarter of 2018.
"We shouldn't expect the Fed to be prepared to send a clear signal about a timing of rate hikes," said Roberto Perli, an economist at Cornerstone Macro.
Bill Lee, head of North American economics at Citigroup (C), said he doesn’t anticipate a move in rates until at least the fall.
“September is the next window they’ve got,” he said on Tuesday. “June is essentially off the table. [Yellen’s] job tomorrow is going to be tough…she has to bring the Fed back to be a credible force again. That is, that every meeting is live…and she’s got to bring a consensus to the committee.”
Greg McBride, CFA at Bankrate, added that despite the weak data, in his view, the economy is not falling apart.
“Job growth is slowing as it would be expected to as labor markets tighten, but the dismal May jobs growth is an anomaly, not representative of the new trend line,” he explained.
Even if the economic fundamentals remain, though, McBride said markets should still prepare for heightened volatility through the rest of 2016.
“Markets hate uncertainty and as uncertainty about the Fed, the economy, and the election grows in the coming months, this is a recipe for heightened volatility…the current market levels can be sustained with no appreciable change, but it’ll be a bumpy road to nowhere,” he said.
Oil Prices Drop to Multiweek Low on Growing Supply
U.S. prices sank to a more than three week low in early Asian trade Wednesday as the prospect of bigger U.S. crude stocks indicate the global oil glut could be more stubborn than previously thought.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in July was last down $0.73 at $47.76 a barrel, after dropping to $47.55, the lowest intraday level since May 23.
Adding to the worries was the latest forecast from the American Petroleum Institute which suggested a 1.2-million barrel increase in U.S. crude stocks for the week ended June 10. A survey of analysts by The Wall Street Journal had estimated a 2.1-million barrel drop.
Official data from the Energy Information Agency will be released later today. If the EIA data confirms the expansion, it would be "a counter-seasonal build in stocks that at least interrupts the prior downtrend," said Tim Evans, a Citi Futures analyst.
Reference: NASDAQ,Fox Business, CNBC
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