The U.S. Federal Open Market Committee is in the midst of a two-day policy meeting after flagging off a historic interest rate hike cycle in December but a slowdown in China and convulsions in global markets could steer it off its course later this year.
After all, the Chinese equity and currency markets have had a rocky start to the year and the world’s second-largest economy is growing at its slowest pace in 25 years. Meanwhile, crude oil prices have plunged to fresh 12-year lows below $30 a barrel, prompting fears of a global recession.
That presents an inclement backdrop for the Fed, whose projections imply four interest rate increases this year.
“The main thing to look out for this week is how much emphasis (the Fed is) going to put on international developments; I think they will highlight these issues again like how they’ve done occasionally in the past and I think that will bring market expectations down to somewhere like one more (rate hikes) this year, maybe two,” said Jesper Bargmann, Nordea Market’s Asia trading head.
“They will mention something (about) the global economy affecting the U.S. economy.”
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