FYI | Jun 08 2006
By Rudi Filapek-Vandyck
It was only a few weeks ago that most economists were banking on a pause in US interest rate hikes, but the general opinion seems to be turning towards another 25 basis points rise at the upcoming FOMC meeting later this month.
Leading Wall Street investment banker and equity broker Goldman Sachs has revised its earlier stance from US interest rates on hold for now to another rise of 25 basis points on June 29.
Others have come to the same conclusion. Danske Bank changed its view as well citing the US Federal Reserve Bank’s firm focus on taming inflation .
Post the next meeting, Danske still sees a need for further tightening, albeit in the more distant future, as core inflation in the US is expected to continue its upward path.
However, the US Fed is now expected to hike one more time and then go on hold for a while to see how well the US economy is coping with the ongoing energy shock. Other factors the Fed will be looking at, Danske says, is exactly how soft the industrial cycle will turn out to be during summer and autumn and how much higher interest will have an impact on this.
Dankse forecasts Fed Funds of 5.25% (one more hike in June) for the coming six months and 5.75% in twelve months from now, implying two more hikes of 25 basis points later this year/next year.