GO
Loading...

Fed Unlikely to Hike Rates Before Autumn: WSJ

Reuters
Tuesday, 17 Jun 2008 | 2:55 AM ET

The U.S. Federal Reserve does not appear to see a compelling case for raising interest rates before autumn unless the inflation outlook deteriorates considerably, the Wall Street Journal said on Tuesday.

The Fed is almost certain to leave rates unchanged when it meets next week, the newspaper said in its online edition, adding that while a rate hike in August cannot be ruled out, market expectations for such a move may be "overly aggressive".

U.S. short-term interest rate futures show that investors widely expect the Fed to raise rates by 25 basis points to 2.25 percent in August.

Fed officials for now want to both show their vigilance against inflation risks, especially from surging energy prices and the weak dollar, while also giving the economy time to recover from the trouble in the housing, labor and financial markets, the paper said.

"As a result, the Fed's policy statement following its meeting next Tuesday and Wednesday is likely to use stronger language about the risks from inflation than in May, but is unlikely to go so far as to ratify market expectations of a rate hike as soon as August," it said.

Fed Chairman Ben Bernanke and most other officials believe inflation expectations remain under control, the paper said.

Bernanke and other Fed officials also believe financial markets remain especially fragile, it said, adding that raising rates soon could worsen such troubles, hitting the mortgage sector and lengthening the housing downturn.

Featured

Contact Economy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More