The Federal Reserve is expected once again to pump the brakes.
The central bank, led by Chair Janet Yellen, is expected to announce that it is not raising the key U.S. interest rate at the conclusion of its two-day meeting on Wednesday. The decision comes at 2 p.m. ET and Yellen speaks to the media at 2:30 p.m.
A rate hike on Wednesday would stun Wall Street. Investors are betting that there’s only a 2% chance of a rate hike in June.
When the Fed increases interest rates, it impacts millions of Americans, not to mention the global economy. Mortgage rates move higher, and debt for credit cards and car loans gets more expensive. Savers benefit because they earn a little more interest on their deposits. A rate hike is generally a sign that the economy is closer to full health.
Not long ago, a Fed rate increase in June seemed very possible. A slew of solid economic data in May encouraged Fed officials to drop hints about a possible June rate hike. Even Yellen said in May that a rate hike would be appropriate in the “coming months” which many took to mean June or July.
Then the May jobs report, which came out June 3, seemingly wiped out the chance of a rate move. The U.S. economy only added 38,000 jobs in May, the worst monthly gain since 2010. Hiring gains in April and March were also revised down and more people stopped looking for work.
However, the U.S. economy is improving in other areas. Retail sales have increased at a solid pace for two straight months, wage growth has picked up though it’s still low and economic growth is expected to snap back this spring after an anemic winter.
Amid that mixed picture, Yellen will likely set the tone for her read on the economy and when to expect the next rate hike.
The weak May job gains aren’t the only risk on Fed officials’ minds. The upcoming referendum vote in the United Kingdom to stay or leave the European Union — known as Brexit — has gripped financial markets. A vote to leave the EU is expected to trigger uncertainty, which could ripple into the global economy and markets. Fed officials have acknowledged that Brexit’s impact on financial markets is a concern for them.
Of course, China’s slowing economy and currency moves, along with low oil prices, remain long-term risks for the Fed’s outlook.
Barring a major surprise Wednesday, it’s unclear when the Fed will next raise rates. Investors are placing a 55% chance of a rate hike in December — meaning they are expecting only one this year. That would be down significantly from the Fed’s original forecast for four rate hikes in 2016.
The Fed next meets in July but expectations are again low for any action on interest rates.