Federal Reserve

The Fed is 'not yet done' with rate hikes, according to S&P Global Ratings

Key Points
  • The U.S. Federal Reserve on Wednesday kept interest rates unchanged and slashed all projections of a rate hike this year.
  • Still, according to the U.S.-based financial services giant S&P Global Ratings, the Fed is "not yet done" with rate hikes.
  • Its chief Asia-Pacific economist, Shaun Roache, says better-than-expected economic growth and strong labor markets leave room for a hike, which he predicts will come sometime this year or early next year.
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Still expecting one more rate hike from Fed this year: Analyst

The U.S. Federal Reserve on Wednesday kept interest rates unchanged and slashed all projections of a rate hike this year.

Still, according to U.S.-based financial services giant S&P Global Ratings, the Fed is "not yet done" with rate hikes. Its chief Asia-Pacific economist told CNBC he thinks another increase may come sometime this year or early next year.

Speaking to CNBC's "Capital Connection" on Thursday, Shaun Roache said better-than-expected economic growth and strong labor markets leave room for a hike.

Wednesday's statement was a dovish turn from previous Federal Open Market Committee projections. The committee had previously predicted two rate hikes in 2019, following four increases in 2018.

The FOMC said it would be "patient" before any further increase in rates.

Given the "soft patch" the global economy is going through, Roache acknowledged that "it makes sense for the Fed to pause to watch the data to see how things evolve." Still, he said he felt that concerns about global growth were "a little bit overdone."

Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., U.S., on Wednesday, March 20, 2019.
Andrew Harrer | Bloomberg | Getty Images

The ratings company expects growth to be "something north of 2 percent this year" and jobs to be created to the tune of about 130,000 per month — a number Roache said is above the "natural rate" of employment growth for the American economy.

"It means the unemployment rate will continue to edge lower, wage growth will continue to edge higher, and that's a scenario in which the Fed probably will hike maybe one more time this year, maybe early next year," Roache added.

Impact abroad

The latest decision to keep interest rates steady is "good news" for economies in the Asia Pacific region, Roache said.

With slowing global trade growth, Asian and other emerging markets will need to rely on domestic demand, which requires investment, he added.

"Investment typically means a wider current account deficit for these countries, and investment is also sensitive to interest rates," Roache explained.

"On both counts, lower U.S. rates really helps these economies because it means they can run larger current account deficits, they can keep investment rates quite high," he said. "That's going to be very helpful for these economies that will be suffering, probably from slowing export growth as we go through this year."