Fed is Expected to Raise Interest Rates; USD/JPY in Focus

All market participants today will turn their attention to FOMC’s decision at 18:00 GMT, which is one of the most significant announcements for this month. Federal Reserve Committee is widely expected to vote for raising Federal funds rates to 0.75% – 1% from 0.5% – 0.75% now. This event may have a strong impact on the market and if they raise interest rates as expected probably will affect the U.S. dollar positively. However, this might be tricky as the greenback traded mixed during the last couple of days and it has a weak momentum. Fed will also publish economic projections and half an hour later Fed Chair Janet Yellen will give a press conference and may give any hint as to when the next hike is likely to occur.

Federal Reserve statements and policymakers over the last months always were stating that two conditions are necessary for Fed to tighten the monetary policy: 1) the economy to be near full employment and 2) in a path of a rising strong inflation rate. According to the CME Group FedWatch tool, the central bank may increase its borrowing rates by 25bps to 75-100bps at today’s policy meeting with a probability of 90.8%.


USD/JPY – Technical Outlook
The U.S. dollar traded lower against the Japanese yen during yesterday’s session, however, it still has a weak momentum as it awaits the Fed interest rate decision late in the day. The USD/JPY pair created a narrow range over the last five days with upper boundary being the 115.50 price level and lower boundary - the 114.50 support barrier. Last week, was a significant bullish session for the pair as it managed to challenge a fresh six-week high at 115.50, however, it failed to hit it again.

We expect a further upward movement until the 116.00 strong psychological level. On the other hand, if the Federal Reserve surprises today and leaves interest rates on hold, then the currency pair will hit the 114.15 support obstacle if there is a break of the 114.50 barrier which overlaps with the 50-SMA on the 4-hour chart. Technical indicators seem to be in contrast with our bullish thought as the price is still moving lower. The RSI indicator slipped below the 50 level while MACD is falling within the positive territory.


JFD Research

The inflation and employment are at Fed’s target range, the central bank is on track for the forecasted three hikes. This can boost the US economy, but how do the Fed rate hikes 2017 impact your situation?

The US Federal Reserve is expected to raise interest rates by 0.25% today afternoon. It is likely that this news can be great for the growing economy, but how can the Fed rate hikes 2017 impact the layman. The rate hike expectations are high since the inflation and employment are at Fed’s target range. Looking at the past comments from the Fed officials, they may feel more confident in raising interest rates. In fact, they are expected to stop short of increasing their forecast for more than three rates hikes in 2017.

[B]Three rate hikes could turn to four this year[/B]

Most of the economists expect three rate hikes this year. Following February’s strong jobs report with creating 235,000 new jobs, there was speculation that the Fed could move to four rate hikes this year. Moreover, the central bank releases its interest rate statement at 2 p.m. This is also coupled with latest forecasts for inflation, interest rates, and the economy. According to some market pros, inflation could be a driver of rate hikes other than Fed. In addition, Diane Swonk, Chief Executive Officer (CEO) of DS Economics, said:

[I]“My guess is you are going to see a higher level of certainty on this multiple rate hike scenario. We are finally at a place where the economy has some self-feeding momentum. It is not just the Fed propping the US up again. They need to illustrate that.”[/I]

A fixed income portfolio manager at Morgan Stanley Investment Management, Jim Caron, signaled that he does not expect four rate hikes in 2017. Furthermore, he sees the Fed holding off on June, which most economists see as the next chance for a rate hike. According to him, one could be in September and another in December. Caron added:

[I]“The whole view for four rate hikes this year rests on how well this health care and tax bill comes through into the market. I can only believe from what I see, read, and watch that it is going to be messy. I don’t think this is smooth and it could be for the next three months that we are going to watch this.”[/I]

[B]How can Fed rate hikes 2017 impact you?[/B]

Being a borrower, you need to pay whereas you are not going to get paid if you are a saver. This is how the Fed rate hikes 2017 impact your situation. As things going now, the central bank is on track to meet the expectation of three hikes. Fed officials forecasted in December that three hikes would be likely for this year. March, June, and December are expected to be the months of rate hikes.

Greg McBride, a chief financial analyst at Bankrate, said the first borrowers to be affected will be credit card holders and also those with home equity lines of credit. According to him, as credit companies adjust to a new prime rate, they will be the ones who will see a payment impact with 60 days. Steve Rick, a chief economist at CUNA Mutual Group, said:

[I]“Borrowing goes up in the year after a Fed rate increase. People try to get in before rates go up even more. People who put off buying a car or a durable good – an appliance, a big-screen TV – think, I better buy it now and put it on my credit card.”[/I]

Historically, banks like interest rate hike because they push margins higher. However, they can be reluctant to pass on those benefits to their clients. Finally, the US central bank expects to hike the interest rates not only thrice in 2017 but also three more times in 2018. Furthermore, this can keep going until the Fed takes the rate up to about 3%. The current interest rate is 0.5% to 0.75%.