U.S. Policymakers are scheduled to meet this week, Federal Open Market Committee (FOMC), the Federal Reserve’s main policy making organization will to decide whether to hike rates or keep them as is. Any decision policymakers take will be criticized as storms in the market are brewing with protest from President Donald Trump on the current monetary policy and a Reuters poll showing economists are growing more skeptical.
President Trump has been critical of the Fed’s monetary approach and last week tried to pressurize it into not raising rates further, citing that it would be a mistake.
The Reuters survey shows that the risk of a U.S. recession in the next two years has risen to 40%, with suggestions that investors think growth and inflation may move the wrong way.
Other Reuters polls of economists have suggested similar outcomes, strongly implying that upward momentum has now stopped.
Despite all the skepticism, the Fed is expected to hike rates to a range of 2.5-2.75 percent, the Fed argues as stated by Chairman Jerome H. Powell that rate hikes are necessary to keep inflation in check and depress speculation driven by low interest rates.
A recent Fed Study also supports the rhetoric of another rate hike; the “Financial Stability Report” indicated that creditors have relaxed credit standards on more than $4 trillion of corporate debt.
Moreover, the study also showed prices of commercial real estate, equities and farmland were higher spectrum based on historic measures. Thus, Caution calls for raising interest rates.
To conclude, some economists fear higher rates would be the catalyst for an economic downturn or even a recession, with the recent spike in volatility and stock market swings feeding their concerns.
No one can say for recent the probable outcomes of the Feds interest rate decision, whether it kills the current recovery or keep the economy from overheating, only time will tell which argument is stronger.