Could U.S., North Korea summit sway Fed rate hike decision?

Investors unimpressed by summit results

The Federal Reserve is set to announce its decision on a June increase to the federal funds rate on Wednesday at the conclusion of its meeting, and investors are watching closely.

The S&P 500 remained unchanged on Tuesday as investors remained unimpressed by this week's U.S. and North Korea nuclear summit.

The Federal Reserve voted against raising the federal funds rate in May, but this was expected. The market had predicted just a 6% chance of a rate hike at the May meeting, but a 94% chance of a 25 basis-point hike in June.

Many experts have been more bullish in their approach to increases to the federal funds rate in 2018, forecasting a total of four rate hikes for the year. Last year, experts even predicted President Donald Trump’s selection for Federal Reserve Chair wouldn’t matter – the market would still see four rate hikes.

However, after the minutes were revealed from the Fed's May meeting, some experts began to question the forecasted four rate hikes. And now, coming off the news, or lack thereof, from the meeting between President Donald Trump and North Korean Leader Kim Jong Un, experts are watching closely to see what the Fed will say about its monetary policy.

“A rate hike, given scarcity in the U.S. labor market, appears a certainty for the Federal Reserve,” Econoday said in an email to its subscribers.

While economists still expect the Fed to raise rates, what Fed members will say about their monetary policy and outlook for the remainder of 2018 is yet to be seen.

“The biggest question isn’t simply whether or not there will be a rate increase – that seems very likely – but what’s within the statement in relation to the amount of the raise and how many additional raises will come in the next year,” said Steve Rick, CUNA Mutual Group chief economist.

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