Fed expected to leave rates unchanged at policy meeting
by Ann Saphir,
2016-03-16 09:28:46.0
SAN FRANCISCO — US Federal Reserve policy makers are expected to leave short-term interest rates unchanged at a two-day policy meeting that began on Tuesday, but also to signal that a rate hike is not too far off as long as the job market and inflation continue to improve.
The meeting began at 5pm GMT on Monday, a Fed spokesperson said. The Fed is due to issue a statement at the conclusion of the meeting on Wednesday at 6pm GMT, and Fed chairwoman Janet Yellen will hold a news conference at 6.30pm GMT.
The US central bank lifted borrowing costs in December for the first time in nearly a decade, but uncertainty over the effect on the US economy of slower growth in China and Europe since the beginning of the year has driven policy makers to hold off on any further rate hikes since then.
A recent string of stronger US data, including faster-than-expected job growth in February, has eased the fear in the past few weeks that challenges from abroad, and the tighter financial conditions they sparked at home, could derail the recovery.
"The most prominent risk in January — the tightening in financial conditions at the start of the year — has receded," wrote Goldman Sachs economists Zach Pandl and Jan Hatzius. "As a result, chair Yellen is likely to indicate that the committee remains on track to raise rates again next quarter."
Still, the path to a next rate hike is unlikely to be smooth. US retail sales were reported on Tuesday to have been weaker than thought in January, renewing worry over domestic growth prospects, even as the Bank of Japan (BoJ) offered a gloomier outlook for the world’s third-biggest economy without immediately adding to stimulus.
Fresh forecasts from the Fed’s 17 officials released after the meeting ends on Wednesday are likely to signal three or possibly two rate hikes this year, a slower path of rate hikes than the four 2016 rate hikes envisioned in December, the last time forecasts were published.
The expected downgrade may largely reflect the Fed’s decision in January to put policy on hold for the time being, rather than new worry over the US or global outlook.
Indeed, since the last Fed meeting US inflation has shown signs of stabilising, with one measure published by the Dallas Fed rising to 1.9%, its closest to the Fed’s 2% goal in two-and-a-half years. Meanwhile, the US unemployment rate held at 4.9% in February, near the level many Fed officials believe represents full employment.
The European Central Bank’s (ECB’s) decision last week to ease policy further may help add to confidence that action has been taken to underpin growth in Europe, helping to ensure a stalling of the global growth drag on the US. That could mean another US rate hike by midyear and, depending on economic data, more to come after that.
"June seems certainly like a possibility" for the Fed’s next rate hike, said former Minneapolis Fed president Narayana Kocherlakota last week. Mr Kocherlakota’s own preference is for the Fed to take out "insurance" against a recession by cutting rates back to near zero.
Inflation debate
Still, Mr Kocherlakota’s former colleagues are likely to spend plenty of time discussing the inflation outlook.
More hawkish rate setters worry that if the Fed does not act to pre-empt inflation, it could end up behind the curve and lose credibility, while the more dovish members believe the economic recovery is still fragile and want to see firm evidence of inflationary pressures.
The Fed will also need to decide how to characterise the "balance of risks" to their baseline outlook, particularly if policy makers want to keep the door open to rate hikes in April or June.
"Look for the committee to say that risks to the outlook for both economic activity and the labour market are ‘nearly balanced’," wrote Barclays economists in a note on Monday, adding that the language was likely to signal a rate hike in June, although possibly earlier.
Traders of futures tied to the Fed’s policy rate currently see about even odds of a rate hike in June, with some chance of another rate hike by the end of the year.
Reuters
Federal Reserve. Picture: AFP PHOTO/KAREN BLEIER
SAN FRANCISCO — US Federal Reserve policy makers are expected to leave short-term interest rates unchanged at a two-day policy meeting that began on Tuesday, but also to signal that a rate hike is not too far off as long as the job market and inflation continue to improve.
The meeting began at 5pm GMT on Monday, a Fed spokesperson said. The Fed is due to issue a statement at the conclusion of the meeting on Wednesday at 6pm GMT, and Fed chairwoman Janet Yellen will hold a news conference at 6.30pm GMT.
The US central bank lifted borrowing costs in December for the first time in nearly a decade, but uncertainty over the effect on the US economy of slower growth in China and Europe since the beginning of the year has driven policy makers to hold off on any further rate hikes since then.
A recent string of stronger US data, including faster-than-expected job growth in February, has eased the fear in the past few weeks that challenges from abroad, and the tighter financial conditions they sparked at home, could derail the recovery.
"The most prominent risk in January — the tightening in financial conditions at the start of the year — has receded," wrote Goldman Sachs economists Zach Pandl and Jan Hatzius. "As a result, chair Yellen is likely to indicate that the committee remains on track to raise rates again next quarter."
Still, the path to a next rate hike is unlikely to be smooth. US retail sales were reported on Tuesday to have been weaker than thought in January, renewing worry over domestic growth prospects, even as the Bank of Japan (BoJ) offered a gloomier outlook for the world’s third-biggest economy without immediately adding to stimulus.
Fresh forecasts from the Fed’s 17 officials released after the meeting ends on Wednesday are likely to signal three or possibly two rate hikes this year, a slower path of rate hikes than the four 2016 rate hikes envisioned in December, the last time forecasts were published.
The expected downgrade may largely reflect the Fed’s decision in January to put policy on hold for the time being, rather than new worry over the US or global outlook.
Indeed, since the last Fed meeting US inflation has shown signs of stabilising, with one measure published by the Dallas Fed rising to 1.9%, its closest to the Fed’s 2% goal in two-and-a-half years. Meanwhile, the US unemployment rate held at 4.9% in February, near the level many Fed officials believe represents full employment.
The European Central Bank’s (ECB’s) decision last week to ease policy further may help add to confidence that action has been taken to underpin growth in Europe, helping to ensure a stalling of the global growth drag on the US. That could mean another US rate hike by midyear and, depending on economic data, more to come after that.
"June seems certainly like a possibility" for the Fed’s next rate hike, said former Minneapolis Fed president Narayana Kocherlakota last week. Mr Kocherlakota’s own preference is for the Fed to take out "insurance" against a recession by cutting rates back to near zero.
Inflation debate
Still, Mr Kocherlakota’s former colleagues are likely to spend plenty of time discussing the inflation outlook.
More hawkish rate setters worry that if the Fed does not act to pre-empt inflation, it could end up behind the curve and lose credibility, while the more dovish members believe the economic recovery is still fragile and want to see firm evidence of inflationary pressures.
The Fed will also need to decide how to characterise the "balance of risks" to their baseline outlook, particularly if policy makers want to keep the door open to rate hikes in April or June.
"Look for the committee to say that risks to the outlook for both economic activity and the labour market are ‘nearly balanced’," wrote Barclays economists in a note on Monday, adding that the language was likely to signal a rate hike in June, although possibly earlier.
Traders of futures tied to the Fed’s policy rate currently see about even odds of a rate hike in June, with some chance of another rate hike by the end of the year.
Reuters
Change: 1.19%
Change: 1.36%
Change: 2.19%
Change: 1.49%
Change: -0.77%
Data supplied by Profile Data
Change: -0.19%
Change: 0.69%
Change: 1.19%
Change: 0.00%
Change: 0.44%
Data supplied by Profile Data
Change: 0.62%
Change: 0.61%
Change: 0.23%
Change: 0.52%
Change: 0.12%
Data supplied by Profile Data
Change: -0.21%
Change: -1.22%
Change: -0.69%
Change: -0.51%
Change: 0.07%
Data supplied by Profile Data