The Federal Reserve is guaranteed to raise US interest rates this week, economists believe, but debate about where it will go next is reaching fever pitch.
The US central bank's Federal Open Market Committee (FOMC) meets on Wednesday and is expected to stage the 16th consecutive hike to US rates. That would take the benchmark rate up a quarter point to 5.0 percent.
"Another rate hike is virtually certain, so the markets will focus on how the directive characterises the outlook for policy in the coming meetings," Lehman Brothers economists said.
Wall Street's hopes of an imminent pause to the Fed's long campaign of hikes, which began in mid-2004, have soared since chairman Ben Bernanke last month hinted at an end "at some point in the future".
Investors decided that point would come sooner rather than later, despite Bernanke's reported complaint to a television anchorwoman that the markets had taken a far too rosy view of his remarks.
Any decision to pause "does not preclude actions at subsequent meetings", and the Fed "will not hesitate to act", if necessary, to keep inflation in check, Bernanke stressed in congressional testimony last month.
But on Friday, US shares powered to touching distance of all-time highs after weak April jobs growth raised the hopes of a Fed pause even higher.
The Dow Jones share average rocketed 138.88 points (1.21 percent) to close at a six-year high of 11,577.74. The blue chip index is not far off its all-time closing high of 11,722.98 reached in January 2000.
The rally came after the Labor Department's non-farm payrolls report showed that US employers added a weaker-than-expected 138,000 new jobs in April, the worst level since October.
But on a less positive note for interest rates heading into Wednesday's FOMC meeting, the payrolls report also showed a sharp rise in wages.
Average hourly earnings increased nine cents, or 0.5 percent, to 16.61 dollars in April, the Labor Department said. Earnings are up 3.8 percent in the past year, the biggest year-over-year gain since August 2001.
"Suffice it to say that the Fed will have to balance the modest job growth revealed in this report with the accelerating pace of wage growth," said Eric Lascelles, currency and fixed-income strategist at TD Securities.
"It seems fairly safe to assume that the Fed will hike rates by 25 basis points to 5.0 percent next Wednesday, but the jury remains out for any decision after that, in light of Bernanke's unclear comments last week and the latest string of economic data," he said.
Before recently, record-breaking oil prices had failed to have much effect on consumer prices in the United States. Neither have US workers derived much benefit in their pay packets from robust growth.
Comments
Comments are closed.