There is probably no question that is more on the minds of financial markets than whether the Fed will raise official rates when the interest rate committee meets in mid-June.
After the last meeting earlier this month, the US monetary knights appeared to have opened the door wide to a rate hike in June. That's something we did at the time written about extensively to have. The bottom line is that the Fed clearly attributed the lower growth of the US economy to a few factors. In addition, the Fed indicated that it expects the economy to accelerate in the coming months.
Ambiguity everywhere
However, such a statement is always very short after the interest rate committee meeting, which by definition leaves too much room for things to be perceived as unclear. In addition, no press conference was planned afterwards in May and the chairman of the bank was unable to provide further clarity.
That's why investors were looking forward to 2 moments:
Labor market at full speed
The number of new jobs was considerably higher than many expected. The American labor market appears to have gone through a dip and is now running very well again. It will become clear in the coming months whether this is indeed the case, because then we will hear how many new jobs have been created.
That could be the final push for the Fed to raise interest rates in June. If the number of new jobs exceeds 200.000, then nothing will stand in the way of another interest rate increase in the US. This is because the minutes, which were published this week, clearly show a central bank that wants to raise interest rates.
There were quite a few committee members who indicated that interest rates should have already risen in May. They decided to join the rest (who wanted to look at that situation for a while). They mainly wanted to wait for the 2 labor market reports. These were on the agenda for the mid-June meeting.
Do not invest in treasury bills
In fact, many committee members have advocated gradually no longer investing the proceeds from previously purchased government bonds in treasury bills. In fact, it is a kind of extension of the quantitative easing (QE) policy. Now a sizeable group from the interest rate committee also wants to phase out shadow QE.
This could generate considerable upward pressure on American interest rates in the long term. Normally, interest rates in the eurozone follow those in the US, but there is a good chance that this will not happen now. This is because the ECB is still continuing with its QE policy. That said, from time to time it is entirely possible that there will be some upward pressure on European rates, as that remains a normal response to a rise in US rates.
Interest path after June
Are more interest rate increases expected if the Fed makes borrowing more expensive again in June? It would not surprise me if the economic and geopolitical environment changes to such an extent that the Fed will not find it appropriate to raise official interest rates again after June.
American President Trump visits the European Union this week and he was anything but friendly. He mainly lashed out at Germany. In his opinion, that country sells too many German cars in the United States. Trump wants to tackle this through higher import duties. So the first skirmishes in what we might call a trade war are not surprising. And not only towards Germany, but also towards China.
Political tensions
In view of the political tensions in the US (there is talk here and there of starting impeachment proceedings) and the uncertainty about how Trump will deliver his first budget, the environment would not exactly be one in which the Fed would again raise official interest rates. times will want to increase.
Finally, there is also something going on in the economic field that does not argue for another interest rate increase. American inflation appears to be falling slightly again and will not rise further for the time being, at least. That's something that doesn't make the Fed happy. The currency depreciation is currently approximately 1,7 percent, while the bank is aiming for 2 to 2,5 percent. Keeping the official interest rate the same would be much more appropriate than increasing the interest rate further.