The market has completely reversed its expectations vis-à-vis the Fed

AP Photo / Richard Drew

• Wall Street now sees a reduction in the interest rate more likely than an increase for the Federal Reserve this year.
• Market watchers anticipated two interest rate increases in 2019.
• Growth forecasts, however, have declined in major economies, including the United States.

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Market observers have long anticipated a steady rise in borrowing costs. But as the economic outlook weakens, they see more and more the possibility that the Federal Reserve will actually lower interest rates in its next policy change.

Expectations of a rise in interest rates this year have fallen below those of a reduction. Bloomberg data indicate a zero probability of the Fed raising rates this year and a 27.7% probability of a 25 basis point reduction. In January, the central bank said it could approach the end of its latest tightening cycle.

This could become more obvious on Wednesday afternoon, while there is generally expectation that the Federal Reserve will keep its interest rates at a stable level. The focus will be on the expected slowdown in growth this year and future developments.

"We can not exclude a point graph showing a zero rise, but the FOMC has the danger of taking such a drastic step, that is, the markets would then take any informal data in the coming weeks as an open door to start pushing for easing, "said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

The newest of the 12 members of the Federal Open Market Committee has decided to increase its benchmark interest rate by one-quarter percentage point, bringing it to a target range of between 2.25% and 2.5%. in December.

Since then, the authorities have indicated that they will adopt a more cautious stance on monetary policy, citing recent stock market turbulence, ongoing trade tensions and weaker expectations in the area of ​​monetary policy. global growth. At the last meeting, in January, they abandoned the reference to "further gradual increases".

Nevertheless, some see a possibility of at least one of two expected rate hikes for the year. Signs of upward pressure on US wages have been observed as average hourly earnings jumped in February from their peak in a decade.

"When it comes to making policy decisions, we interpret the Fed's preference for patience as a matter of timing, indicating that the current upward cycle is not quite yet done, "said Charlie Ripley, senior market strategist at Allianz Investment Management.

The Fed should also reveal details of its plans to hold a larger balance sheet than expected. In 2017, the central bank began to reduce the portfolio of $ 4 trillion of US Treasury debt and other assets acquired after the financial crisis.