Possibility of Multiple Interest Rate Hikes are Shaking Up Markets

Big news in the economy, as the Federal Reserve may raise interest rates again for the summer. The Fed’s June meeting may decide on raising interest rates signaling a continuing uptick in the economy. However the markets remain skeptical on the economy’s continual upswing. In fact, according to to two regional Fed heads, the economy’s solid growth is still not enough to merit multiple rate hikes reports Bloomberg News.

An Arrow shooting over a three-dimensional bar graph - edited by Nicholas Fainlight

All the unemployment has gone down, employment growth currently is lacking.

The Fed signaled from its April meeting that policymakers intended to raise interest rates this summer if second quarter economic growth continues to show a positive trend. If labor markets continue to improve and inflation remains steady at the Fed’s 2-percent target, then it would be highly likely that that the Federal Reserve raises its interest rates. According to Yahoo Finance, investors are now predicting a June hike at 26 percent and another hike of 53 percent in July.

As a result investors and the market have priced a higher possibility of a rate increase for June, pricing accordingly. In fact, Peter Chatwell of Mizuho International Plc mentions:  “Long-end Treasuries have gotten expensive over the past two to three months as the lack of yield in other major bond markets meant that they enjoyed strong international support.”

Quite a few experts however remain skeptical of the Fed raising rates in the first place, exclaiming that the recent economic growth is largely inconsistent. Therefore, the inconsistency should not merit an interest rate hike. Investors, including economists at Goldman Sachs believe that although Fed officials are playing up the possibility of raising interest rates, the Fed will not raise interest rates this summer.

The reason for this is primarily timing. Fed officials believe interest rate hikes should be appropriate if the economy continued to improve, however they are divided on whether those conditions were to be met soon enough. Although unemployment is dropping, employment growth is not growing fast enough for many Federal Bank presidents. If all economic indicators are signaling a positive economic upswing, then 2-3 interest rate hikes this year could be possible, however still unlikely.

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