United state Fed expected to keep rates unchanged
After two Fed governors came out publicly early this month against an increase in the federal funds rate, which has sat at zero since 2008, only a very small minority of Fed-watchers and market players think that the US central bank will take the step.
But Janet Yellen’s team at the Federal Open Market Committee, the Fed’s policy board, will be under pressure to point out a clear trajectory for monetary policy after the apparent division sowed confusion in markets.
The Fed will release its policy statement at 2 pm, or 1800 GMT. No public comment by Yellen or other officials on the decision is planned.
Some in the market are still taking her repeated statements that an increase would come by year-end to heart; others say the economic ground has moved enough to scotch that forecast.
“A policy move (today) is really, really unlikely and I wouldn’t hold out much hope of a shift in the policy statement to encourage pricing of a December hike,” said Kit Juckes of Societe Generale.
But, he added, “Can Fed dovishness calm global markets and stop the dollar’s advance? I’m not sure.”
– Weak inflation –
The reasons are clear for yet another delay to “liftoff” from the extremely unconventional, extremely easy money policies that date to the 2008 recession.
While the jobless rate has fallen to a respectable 5.1 percent, there are still significant signs of slack in the jobs market — wages, for one, have not increased as expected.
Secondly, inflation, which the Fed wants to push up to 2.0 percent, has been weakening instead, in the US and worldwide.
Many economists say the combination of the two justify keeping the fed funds rate as low as possible to support investment, spending and job creation.
But shortly after the September FOMC meeting, Yellen said she expected to begin what would be a slow series of increases by year-end, if the US economy continued to show strength.
Since then, however, the key points of data, on output, hiring, wages and inflation, have all appeared weaker, in part because of the downturn in global economic activity.
Hence analysts said they expect the FOMC to “mark down” its assessment of the economy in its policy statement.
And with central banks in China and Europe headed in the direction of more easing and deflationary pressures all around, many economists and the debt markets are now betting that the first rate increase in more than nine years will not happen until next year, with March the consensus view.
A postponement of a hike will buy some more time for emerging-market countries and their businesses to prepare better for a long-expected and challenging tightening of US monetary policy.
It will also avoid further strengthening the dollar for now. The strong greenback has taken a toll on US exports, a key reason why economic growth slowed in the third quarter.
“The FOMC cited the strong dollar as a drag on net exports in the minutes to their September meeting, and also pointed out that the strong dollar holds down US inflation,” said economist William Adams at PNC Bank.
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