Will the Federal Reserve raise interest rates this year? Bank of America lists three key conditions

Question: How does Powell’s potential reappointment affect the timing of interest rate hikes?

【Global Finance News】Recently, there has been a lot of attention on whether the Federal Reserve will raise interest rates this year. U.S. banks have stated that although the possibility cannot be completely ruled out, the Fed must meet certain conditions to hike rates.

Furthermore, the primary condition for the Fed to raise interest rates is a stable labor market. U.S. banks indicate that the unemployment rate needs to remain below 4.5%. In recent months, the unemployment rate has hovered between 4.3% and 4.6%. The latest employment report shows that in February, the unemployment rate slightly increased to 4.4%, and unexpectedly, non-farm payrolls decreased by 92,000 jobs that month, which may cause Fed officials to worry about the stability of U.S. employment.

Additionally, the Fed would consider raising rates only if core inflation continues to rise, not just energy prices but broad price increases across other sectors.

The final necessary condition for the Fed to consider rate hikes this year is that Powell remains as Federal Reserve Chair. In May, Powell’s term will expire, and before that, he will have one last opportunity to chair the Federal Open Market Committee (FOMC) meeting.

According to the original plan, Powell’s successor, Kevin Wirth, is expected to take over before the June meeting. However, Wirth needs Senate confirmation to officially assume the role, and this confirmation process could be delayed. Powell has previously stated that if his successor is not confirmed by then, he will continue to serve as interim chair.

U.S. banks believe Powell is a “dovish moderate,” meaning “if the U.S. labor market and inflation risks are roughly balanced, Powell will prioritize the labor market over inflation.” (Nan Mu)