Date
22 July 2017
The US unemployment rate held at 4.9 percent last month, near the level many Fed officials believe represents full employment. Photo: Reuters
The US unemployment rate held at 4.9 percent last month, near the level many Fed officials believe represents full employment. Photo: Reuters

Fed expected to sit tight on rates, hint at hikes to come

The US Federal Reserve won’t raise interest rates this week but will likely make it clear that as long as US inflation and jobs continue to strengthen, economic weakness overseas won’t stop rates from rising fairly soon, Reuters says.

That will be a big change from the last time the Fed met, in January, when uncertainty over the impact of slower growth in China and Europe drove policymakers to signal it would stay on hold until it could make a better call on the outlook.

That in turn was a setback from just a month earlier, when the Fed raised rates for the first time in nearly a decade and seemed ready to move four more times this year.

Fresh forecasts from the Fed’s 17 officials released after their meeting Wednesday will almost certainly signal a retreat from that pace, to perhaps two or three rate hikes this year, economists predict and Fed officials themselves have suggested.

But the expected downgrade may largely reflect the drag from the oil and stock market slide in January and the Fed’s decision then to put policy on hold, rather than mounting worries over the US or global outlook.

Indeed, since the last Fed meeting, US inflation has shown signs of stabilizing, with one measure published by the Dallas Fed rising to 1.9 percent, its closest in two-and-a-half years to the Fed’s 2 percent goal.

Meanwhile, the US unemployment rate held at 4.9 percent last month, near the level many Fed officials believe represents full employment.

The European Central Bank’s decision last week to ease policy further may help add to confidence that action has been taken to underpin growth in Europe, helping ensure a stalling of the global drag on the US economy.

That could mean another US rate hike by mid-year 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, whose own preference would be for the Fed to take out “insurance” against a recession by cutting rates back to near zero.

– Contact us at [email protected]

CG/FL

EJI Weekly Newsletter

Please click here to unsubscribe