FOMC Is Expected To Raise Short Term Borrowing Costs This Week

Forex News

In December 2015, the Fed responded to improving economic conditions by raising interest rates that it had cut to near zero during the financial crisis. It set a target range for the fed funds rate of 0.25% to 0.5%. Since then, the Fed has increased the range five times, to 1.50% to 1.755 currently. There is a 90% chance that the Fed funds rate will be hiked this week from 1.75% to 2%.

Markets also await the Fed's policy statement and fresh economic projections on Wednesday. Fed Chairman Jerome Powell is also scheduled to hold a press conference. Fed policymakers' updated forecasts will show whether they continue to expect only one additional rate increase over the rest of the year, or feel recent strong job and economic data justify a second one in the near term, and perhaps a boost to the number of rate hikes expected next year.

The Fed raised rates in March and policymakers say they expect two more upward moves before the end of the year. The Fed raised rates three times last year.

The Federal Reserve’s rate increase will mark a key milestone as the era of cheap dollars draws to a close, further unsettling a US bond market already rattled by rising inflation and government debt supply. 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.