The Federal Reserve is broadly believed to keep a short-term interest rate unchanged for the fifth successive time in its forthcoming meeting on January 31. However, experts and Wall Street keeping a close eye on the Federal Reserve’s policy statement for slightest hints pertaining to long awaited rate cut. Following the interest rate futures listed on the Chicago Board of Trade, investors are speculating a 98 percent chance that the Federal Reserve will keep the rate unchanged.
Earlier the Federal Reserve had raised interest rates by a quarter of a percentage point for 17 uninterrupted meetings held between June 2004 and June last year with an aim to keep inflation rate in check. Investors had started expecting that the central bank would start cutting rates in order keep the economy stable since last August when the Federal Reserve paused for the first time.
Despite the current interest rate is still lower than historical standards some experts are of the view that in the wake of previous hikes consumers and corporations may eventually cut back on spending which will have adverse effect on the economy. Thereby, they are speculating very slim chances that the Fed may lower interest rates by a quarter of a percentage point.
Another view point is argues that the Fed has already stated that the inflation trends are lower but the risks are still to the upside. In addition to it, the energy prices have subsided considerably and it further reduced the inflation risks. In these circumstances there are high chances that the Fed may decide to keep the interest rate unchanged for a while.
Further, the risk of inflation and the risks of recession have been receded and the economy is witnessing some positive signals from the housing market. Therefore, in a time when fear of an economic slump has gone, there are high chances that the Fed would continue with the same interest rate.
