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Jerome Powell, the new US Federal Reserve (Fed) Chair, is this week set to oversee the first interest rate increase of his tenure. A quick look at the CME Group’s Fed Watch Tool suggests that there is a 94.4% probability that there will be a 25 basis point (0.25%) hike in the Fed Funds Rate, pushing the target range of 1.25% to 1.50% to a new range of 1.50% to 1.75%.
Positive economic data leading into the Federal Open Market Committee (FOMC) meeting, combined with new tax reforms pushed through by US President Donald Trump have contributed to a more positive economic outlook for the country, while inflation has moved closer to the year-end target of 2%. All of this is supportive of a short-term rate hike.
While it appears that a rate increase is a foregone conclusion, markets will be looking for clues as to the pace of further monetary tightening this year. It is expected that 2018 will bring three interest rate hikes from the Fed, including this one. However, there is growing speculation that the policy makers on the FOMC may provide more hawkish guidance at the meeting, raising the possibility of four rate increases this year.
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