The Week Ahead: Will the Fed Raise Rates Again So Soon?

Now that the Federal Reserve has increased the short-term interest rate for the first time in nearly a decade, the question on everyone’s mind is: When will the next rate increase occur?

The world will find out at 2 p.m. Eastern on Wednesday, January 27, when the Federal Open Market Committee (FOMC) makes its announcement following its two-day meeting—its first of 2016 and first since last month’s historic rate increase.

In December, the Fed raised the target rate from near zero where it had been for nine years up to 1/4 to 1/2 percent following the announcement of the Bureau of Labor Statistics’ November Employment Summary, which reported that 211,000 jobs were added (later revised up to 252,000).

Global economic concerns persist into the new year, however. Also, the presidents of some of the individual Fed banks, namely Boston Fed President Eric Rosengren and New York Fed President Bill Dudley, have stated this month that the Fed intends to be gradual with its normalization of monetary policy.

The BLS reported another 292,000 jobs were added in December a few weeks after the Fed’s rate increase. National Association of Federal Credit Unions (NAFCU) Chief Economist Curt Long said of the December employment summary, “While it is a strong report overall, it is not so positive as to overshadow the troubling developments in China recently, and the Fed will likely need more ammunition before it goes authorizes another rate hike.”

Some believe that a rate hike is coming soon, but not as soon as this week. One concern for the Fed is that inflation remains well below the 2 percent target rate. Paul Ashworth, Chief US Economist at Capital Economics, said of the December employment summary that “These figures obviously support a March rate hike from the Fed, but as the FOMC statement last month stressed, it is developments in inflation rather than the labor market that will determine the pace of future rate hikes.”