US Fed Is Widely Expected To Raise Interest Rate Next Week
The Federal Reserve is expected raise its target interest rate to above the rate of inflation next week. This will be the second rate hike of the year (following one in March) and the seventh since December 2015. After the expected rate hike, the Fed's target interest rate will be set at a range of between 1.75%- 2%, matching the Fed's inflation target and roughly in-line with the latest inflation data.
US CPI rose by 0.2% in April after it had slipped 0.1% in March. In the 12 months through April, the CPI increased 2.5% (the biggest gain since February 2017). Core CPI rose 2.1% year-on-year in April, matching March’s increase.
Higher short-term borrowing costs would likely have more sustained consequences for traders and investors than a recent spike in benchmark 10-year Treasury yields. Three weeks ago the 10-year Treasury yield rose above 3% for the first time in nearly seven years, but it has since subsided on trade tensions and geopolitical worries.
Meanwhile, May's strong employment report, including a slightly better gain in wages, signals the Fed is on track to raise interest rates in June and could even add another rate hike to its forecast this year. Employers created 223k new jobs in May, well above the 188k expected, and the unemployment rate fell to 3.8%, after reaching a low 3.9% in April. Wages grew by 0.3% mom, or 2.7% yoy, better than expected 0.2% growth.