Published: Mon, June 12, 2017
Money | By Armando Alvarado

Fed is set to raise rates this week despite political tumult

Fed is set to raise rates this week despite political tumult

"The inflation background remains challenged".

Sweet of Moody's said the Fed won't worry about the low expectations yet.

For the second time this year, the U.S. central bank appears poised to raise interest rates despite fresh signs that the world's largest economy is not in peak condition.

The central bank left the target for the federal funds rate, the interest rate offered to other banks, between 0.75 and one per cent at the last meeting in May, with a 25 basis points move to an upper bound of 1.25 per cent now on the cards.

"Details of balance sheet plans potentially released at the June meeting may affect the probability of a September versus a December announcement and associated rate hike 'pause, '" Citi economists Andrew Hollenhorst and Ebrahim Rahbari wrote in a research note on Monday. On Friday, federal funds futures implied traders saw a coin-toss for another rate hike by year-end.

"I'd be very surprised if they didn't hike in June, given all the signals that they have sent", Jonathan Wright, an economics professor at Johns Hopkins University in Baltimore, told Bloomberg.

For the latest on inflation, the government will report wholesale prices Tuesday and consumer prices Wednesday.

The Fed now holds $2.5 trillion of U.S. Treasurys and $1.8 trillion of mortgage-backed securities, a legacy of.

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In oil markets, Brent crude traded at around $48.85 a barrel on Monday, up 1.47 percent, while US crude was around $46.43 a barrel, up 1.31 percent.

Given the weak data, the Fed's persistent belief the sun will come out tomorrow, and inflation will stabilize at two percent in the medium term, has drawn sharp criticism from some quarters.

The bond market has adjusted to the recent sluggish inflation data. Investors are not upbeat about inflation outside the United States either.

In May, the last time the board met, they voted unanimously to maintain interest rate paid on required and excess reserve balances at 1.00 percent.

TIPS-focused funds have continued to attract money since late 2016, with their assets reaching an all-time peak of almost $63 billion in the week ended June 7, according to Lipper, a Thomson Reuters unit.

The Fed will also release updated economic growth and rate hike forecasts, while Fed Chair Janet Yellen will hold a press conference mid-afternoon Wednesday.

Economists J Bradford DeLong and Narayana Kocherlakota, a former president of the Minneapolis Fed known for advocating a cautious approach to raising rates, each accused the Fed in recent days of persistently overstating the strength of the U.S. economy and inflation.

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