Though an interest rate hike announcement is unlikely, expect the Federal Reserve to “pave the way” for an increase Wednesday to soften potential market havoc down the road, a former Philadelphia Fed board member said Tuesday.
“One thing that Janet Yellen does not want is she doesn’t want a big surprise. By paving the way, it won’t spook the markets,” said Ted Peters, CEO of Bluestone Financial Institutions Fund, in a CNBC”Closing Bell” interview.
The U.S. central bank’s June policy meeting wraps up on Wednesday, with market watchers looking for hints of when the Fed will abandon its near-zero interest rate policy. Peters believes the Fed will hike rates in September and December for a total increase of 50 basis points.
The Fed has repeatedly stressed that data would drive its decision. The U.S. economy created a better-than-expected 288,000 jobs in May as wages grew by 8 cents an hour, equal to an annualized increase of 2.3 percent.
But the Fed may not give much of a signal Wednesday as it may be “too early to make a confident hint,” said Ethan Harris, co-head of global economics research at BofA Merrill Lynch.
“I don’t think they really know, themselves,” Harris said on CNBC on Tuesday.
Economic data like growth and inflation have not reached the Fed’s expectations, he said. He noted that 4 percent annual GDP growth—recently outlined as a goal by Republican presidential candidate Jeb Bush—would be feasible “if we want double-digit inflation.”
Harris added that risks to markets may come much closer to when the Fed actually increases rates.