With markets fully pricing in another Federal Reserve interest rate rise at this week’s meeting, all eyes will be on the central bank’s hints into the pace and quantity of future hikes.
Fed Chairman Jerome Powell will need to answer the key question of recent trade tensions, combined with economic turbulence ranging from Europe to emerging markets, has dimmed the Fed’s domestic outlook.
Powell will likely remain optimistic, but non-committal regarding the pace of hikes beyond September.

There’s one key question facing Fed Chairman Jerome Powell.

Has the Federal Reserve’s optimism about future economic growth, predicated in part on some expected fiscal boost from the tax cuts, waned in the face of rising global trade tensions and emerging market turbulence?

Pretty much all of Wall Street is forecasting another interest rate increase from this week after the US jobless rate fell to a an 18-year low 3.8%.

But what really matters for investors now is the likely pace and quantity of future rate hikes beyond Wednesday’s announcement — which will take the federal funds target range up by a quarter percentage point to 1.75%-2.0%.

The latest economic data show inflation picking up in line with the recent spike in oil prices, but workers’ wages still failing to keep up.

Markets are especially fixated on whether or not the Fed will raise rates a fourth time at the end of the year, or hold off on additional increases until 2019.

The messaging is everything, and that includes the Fed’s post-meeting statement, the central bank’s new round of economic and rate forecasts and Fed Chairman Jerome Powell’s quarterly press conference.

Chances are, Powell will stick to an optimistic script, downplaying trade concerns as too early to have a concrete economic impact as he did in recent congressional testimony.

Rate Neutrality

Another key concern for investors is the Fed’s “terminal rate” — where policymakers believe the federal funds rate will end up. All indications are that the expected “neutral rate,” one that neither boosts or retards economic growth, has fallen since the Great Recession. Currently, the median projection for that longer-run rate is 2.9%.

In assessing the Fed’s outlook for the longer-run federal funds rate, Wall Street economists are focused on language in the policy statement that says the rate “is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

Fed Governor Brainard suggested this language was “stale” in a recent speech. …read more

Source:: Business Insider


(Visited 3 times, 1 visits today)
Jerome Powell needs to answer one key question as the Fed prepares to raise rates again

Leave a Reply

Your email address will not be published. Required fields are marked *