The Federal Reserve is currently considering a rate hike in their upcoming May meeting, with a 67% probability according to the FedWatch Tool. However, market participants have differing opinions on the trajectory of rates for the remainder of the year. In fact, the majority of the market now expects rates to be lower than their current level.
This divergence between the Fed’s plans and the market’s expectations could have significant implications for global markets. A rate hike in May could lead to increased volatility and a potential sell-off in equities. On the other hand, if the Fed decides to hold off on a rate hike, it could signal to investors that the central bank is concerned about the state of the economy.
One factor that may be contributing to the market’s pessimistic outlook on rates is the recent slowdown in economic growth. The first quarter of 2019 saw GDP growth of just 3.2%, well below the 4% growth rate seen in the second quarter of 2018. Additionally, inflation remains below the Fed’s target of 2%, indicating that there may be little need for the central bank to raise rates.
Despite these concerns, some analysts remain optimistic about the state of the economy. Unemployment remains low, and consumer confidence remains high. Additionally, the recent tax cuts and deregulation efforts by the Trump administration could provide a boost to economic growth in the coming months.
Ultimately, the decision on whether to raise rates in May will depend on a variety of factors, including economic data, inflation, and global events. Regardless of the outcome, it is clear that the market will be closely watching the Fed’s actions in the coming months.
