Fed decision preview: What to expect from the Federal Reserve

The US Federal Reserve will release its decision about interest rates tomorrow. Victoria Scholar, IGTV reporter, asked Marc Ostwald, global strategist for ADM Investor Services, about what he predicts the US central bank will do and his outlook for the US dollar.

Will the Fed raise interest rates?

Ostwald predicts that the Federal Reserve’s decision will depend on different factors. Ostwald said that if unemployment is low and the labor market keeps tightening, the Fed may have to raise rates at least once this year.

‘If the labor market is as tight as they are [the Fed] projecting, they can’t afford to completely price out the chance of at least one more rate hike, at least this year, and perhaps one more next year,’ said Ostwald.

Was the Fed right to pause interest rates?

When Scholar asked Ostwald if the Fed made the right decision to pause interest rates, he agreed. Ostwald said the Fed didn’t communicate about it in the best way.

‘I think it was, but I don’t think it made a particularly good fist, as they say, of its communications in the December-January period. It was such a strong about turn[from the earlier interest rate hikes],’ said Ostwald.

He also felt that the timing of the interest rate pause was not ideal because it happened after US President, Donald Trump, criticised Fed chair, Jerome Powell, for increasing rates in winter 2018.

‘It did look a bit like cowing to Mr. Trump’, said Ostwald.

What will happen to the US dollar?

Ostwald also told Scholar that the US gross domestic product (GDP) will stabilise at 2% and the US dollar may fall as US treasury yields fall. While the dollar may stumble, with global trade slowing, that could be boom for the US dollar as well.

‘In an environment when global trade is contracting, there’s less of a dollar surplus around the world. That’s generally going to be dollar supportive,’ said Ostwald.

US and UK investors will eagerly watch the Fed’s decision.