Fed Rate Hike Timing Remains Unclear as New Month Begins

Number-crunchers in and out of the U.S. have been closely monitoring the Federal Reserve committee meetings since the central bank started tapering, and eventually ending its overarching quantitative easing economic stimulus last year. This is due to the proverbial $64 million dollar question of when the Fed plans to increase overnight borrowing rates for the first time since late 2006 and put an end to its “ultra-easy” monetary policy. However, there does not seem to be any more clarity following recent comments from Fed Chair Janet L. Yellen and other officials.

At the start of 2015, there were still many market analysts and economic strategists expecting an interest rate hike to take place as early as April. But following the dovish remarks of Yellen and other Fed movers and shakers, as well as largely mixed economic variables, it would appear that most of these experts have similarly become more dovish when it comes to their predictions of rate hike timing.

Fed Rate Hike

Quotes attributed to Yellen last week suggested that the Fed would proceed cautiously when planning its first rate hike in years. She had also been quoted as saying that the central bank would base its decision to increase rates on economic variables, with the decision to be reviewed at all Federal Open Market Committee meetings going forward.

Howevever, Fed Vice Chairman Stanley Fischer did have some interesting remarks on Friday that were contrary to what Yellen’s quotes had suggested; according to Fischer, it may be inimical for the Fed to allow markets too much leeway for forward guidance in the matter of increasing benchmark rates. Fischer’s quotes suggest the Fed may not provide much of a heads-up when the committee decides on rate hike timing, with the interest rate hike still expected to take place within the year.

At the moment, it appears that the Fed still is not sure when it really plans to increase interest rates and may not decide on this until a few FOMC meetings down the line. A good number of experts believe that June 2015 would be the most likely timing for a rate hike, while some, such as those from JPMorgan Chase & Co. (NYSE: JPM) are leaning toward September 2015 as the most likely timing. Others on the extremely dovish side still bet on a rate hike later in 2015, or even early in 2016.

What is sure, however, is the eventuality of the Fed increasing interest rates at some point in the foreseeable future. Again, prognosticators will be looking at the aforementioned economic variables, which may include those stated on this month’s economic reports. Some relevant statistics worth considering include the U.S. GDP for the December 2014 quarter, which increased by an annualized rate of 2.2 percent, lower than analyst forecasts of 2.6 percent.

For the March 2015 quarter, however, many look forward to the U.S. economy still improving. As for upcoming statistics, the main report to watch out for would be the February Non-Farm Payrolls data, which is due for release this Friday.