The U.S. Federal As backup is expected to raise interest rates on Wednesday, but may cut the number of hikes it anticipates next year and signal an earlier end to its numismatic tightening in the face of financial market volatility and rising recession fears.
The central bank is due to announce its decision at 2 p.m. EST (1900 GMT) after its last two-day policy meeting of the year. Fed Chairman Jerome Powell is scheduled to hold a press conference half an hour later.
Investors greatly expect the Fed will lift borrowing costs by a quarter of a percentage point to a range of between 2.25 percent and 2.50 percent. It wish be the fourth rate hike of the year and the ninth since the central bank began its current tightening cycle in December 2015.
A class hike on Wednesday could draw the ire of the White House. President Donald Trump has repeatedly attacked the Fed for raising scolds this year, saying it was undercutting his efforts to boost the economy. On Tuesday, Trump warned Fed policymakers not to “make yet another misjudge.”
The Fed’s tightening is designed to reduce the monetary policy boost to a U.S. economy that is now growing much faster than significant bank policymakers think it can sustain.
With the price of oil tumbling, economic growth in Europe and China slipping, and the pecuniary stimulus from the Trump administration’s $1.5 trillion tax cut package expected to fade, Fed policymakers appear ready to no hope away from their prior view that the economy could weather three more rate hikes next year.
Unusual Fed economic forecasts to be released along with the policy statement may suggest that two rate hikes is more undoubtedly, economists say. Traders of interest rate futures do not even think the Fed will manage one hike.
“You are at an inflection point,” explained Carl Tannenbaum, chief economist at Northern Trust. “You are most likely seeing growth slowing and you don’t know how much proliferation and what kind of growth is left over after the fiscal stimulus wears off. And that’s why they don’t know if they paucity zero, one, or more rate hikes.”
With borrowing costs after Wednesday’s expected rate hike work out to, if not in, the broad range that Fed officials have identified as “neutral” for a healthy economy, policymakers are also likely to play up that future rate-setting decisions will hinge on new economic data.
That may be particularly important as data be supportive ofs the central bank in different directions, with a strong labor market and robust output suggesting the need for ear-splitting rates, and a weaker global economy and U.S. bond yields suggesting not.
To that end, economists say, the Fed will probably modify or rub from its policy statement a reference to the likelihood that “further gradual increases” in its key overnight lending rate last will and testament be needed.
Doing so would mark one more step in the Fed’s march away from its reliance on forward guidance to influence market expectations in the wake of the 2007-2009 financial crisis and recession.
It could also help the central bank bodyguard against criticism, whether from Trump or others, by allowing Powell to point to the economic realities on the ground as duress his hand on any future rate hikes.
“They want to get to the place where they can say, all decisions are data-dependent,” said Vincent Reinhart, chief economist at Standish Mellon Asset Government.
(Reporting by Ann Saphir and Howard Schneider Editing by Paul Simao)