Will the FOMC raise rates in June?

The Federal Open Market Committee kicks off its two-day monetary policy meeting on Tuesday, while little hesitation seen on the Street regarding this month’s interest rate decision.

According to Fed funds tracked by CME Group’s FedWatch tool, market participants are currently weighing in more than a 95 percent chance of a rate hike at June 14.

Investors are betting on a 25 basis points increase that would leave the Fed’s overnight short term rate in a range between 1.00 percent and 1.25 percent.

If the US regulator votes in favor of a new rate hike, it would become the second monetary policy adjustment of this year. Following this idea, if rates are modified at the June meeting, markets are likely to start preparing for a new rate move on September or December.

In recent days, we’ve seen strong volatility on the June rate hike probability due to several factors weighing on the global scene. Only last week, world markets came under significant pressure on the back of three major political events: former FBI director James Comey testimony before the Senate, ECB’s monetary meeting and parliamentary elections in the United Kingdom.

While the latest two events do not affect the rate decision directly, Comey’s remarks were seen as a relief on the Trump-Russia political turmoil, which could provide a more solid background for the US central bank to continue with its monetary normalization process this year.

Market players were concerned that an alleged interference of Trump on Comey’s federal investigation into the former National Security Adviser Michael Flynn would impact negatively on the president’s ability to push key economic reforms in Congress.

Apart from the political scandals, economic data hasn’t been supportive, which leaves another door open for halting the monetary adjustments. Fed Chair Janet Yellen made clear over her past few speeches that small changes on indicators won’t affect the regulator’s strategy.

The data front in the week ahead displays two key indicators, Consumer Price Index and Retail Sales, which are set for release on Wednesday before the Fed announcement. Core CPI is expected to hit a 0.2 percent for May and a 1.9 percent year-over-year.

Latest rhetoric is on the hawkish side and it’s certainly supporting the idea of hike this week. A rate hike would also help the US dollar to recover against major rivals, while triggering a downward correction on safe-haven assets such as gold or yen.