Tonight sees the first 2017 meeting of the US Central Bank, the Federal Reserve, at 7pm. Last time around, the Open Market Committee (FOMC) agreed to hike rates for only the second time since the 2008 financial crisis. Now, with Donald Trump sitting in the Oval Office as the 45th President of the US, might we see a reaction from the Fed?

This seems highly unlikely for a variety of reasons.

First, and most obviously, having only hiked under two months ago, Chair Janet Yellen and her team will be unwilling to increase rates at too fast a pace, as has been previously stressed by members of the committee on multiple occasions. By raising rates too quickly, the Fed risk creating a recession as the amount of credit available in the economy is reduced. Yellen believes that a course of gradual rate hikes would instead be better, not risking to derail the US economy before Donald Trump has even confirmed his economic plans – likely to include a massive fiscal stimulus.

Second, between now and the next meeting of the group on 15 March, there are still two key employment data releases – Non-Farm Payrolls this Friday and on 10 March, the week before the Fed reconvenes – still to be . These figures are highly scrutinised by the monetary policy setting committee alongside inflation figures and economic growth as the central bank looks to keep all three in check. In the previous post-meeting statement, the Fed stated that is believes the unemployment level in the US is “solid”, while not going so far as to say that the country was at full employment. Therefore they would need to consider this further data before reaching such a conclusion.

Third, and perhaps most significantly, there is no press conference scheduled for this meeting of the Fed. Why is this significant? Yellen and co. have previously only raised interest rates during a policy decision with a post-meeting press conference in order for the head of the central bank to offer greater clarity on the decision to lower the market impact of the event.

Instead, markets will be relying on the official statement released after the meeting on how to interpret the decision. Should the FOMC indeed stand pat tonight, investors will be trying to ascertain as to just how hawkish the committee currently is; with three hikes forecast for 2017 at the last meeting, any revision to this forecast (either dovish or hawkish) could have a significant market impact. However, if they do decide to hike at this meeting, it would show that the Fed are indeed serious about meeting their target for rates to be raised three times this year, having issued a similar forecast for four hikes in 2016, while only actually doing so once. With four new members joining the committee in 2017, it seems highly unlikely that they will want to stir the pot too early on in the year.

Fed fund futures are currently pricing in only a 14% chance that the Fed will indeed raise rates this evening, compared with the “100% probability” that was forecast in before December’s rate hike. That is compared with a 34.5% probability for a 15 March rate increase.

Of course, with Trump now officially confirmed as the leader of the US, things continue to surprise markets on a daily basis. The Federal Reserve could just be one of them, however history has shown that the central bank tend to behave in a more pragmatic manner than their new President. At least for now.

Henry Croft, Research Analyst, 1 February 2017