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Fed to hold rates steady ahead of Trump's decision on new central bank head

Markets will look to it for confirmation the central bank is on track for a December rate hike

Reuters  |  Washington 

US Federal Reserve
US Federal Reserve.

The Federal Reserve is expected to keep unchanged on Wednesday as speculation swirls on who will be its next leader, but the US central will likely point to a firming as it edges closer to a possible rate rise next month.

The has raised rates twice since January and currently forecasts one more hike by the end of the year as part of a tightening cycle that began in late 2015.

Investors have all but ruled out a move at the end of this week's two-day policy meeting. The is due to issue its latest policy statement at 2 pm EDT (1800 GMT).

Markets will look to it for confirmation the central is on track for a December rate hike, though attention will quickly turn to who will be in charge of monetary policy at the end of Chair Janet Yellen's first term in February 2018.

President Donald Trump, who has interviewed Yellen, Governor Jerome Powell and three others for the top job, is likely to announce the nomination on Thursday.

Powell, a soft-spoken centrist who has supported Yellen's gradual approach to raising rates, is seen as having a lock on the position.

"The bottom line is the meeting is probably going to be a somewhat boring event for markets, overshadowed by the expected chair decision," said Torsten Slok, chief economist at Deutsche

INFLATION WORRIES

policymakers have been buoyed in recent months by a strengthening US and further tightening in the labor market, although inflation has continued to remain below the central bank's 2 percent target.

The unexpectedly maintained a brisk pace of growth in the third quarter, increasing at a 3.0 per cent annual rate, the Commerce Department reported last week.

A decline in hiring in September also has largely been dismissed as a blip caused by the temporary displacement of workers due to Hurricanes Harvey and Irma. That jobs report also showed wages growing at an encouraging pace and the unemployment rate falling to more than a 16-1/2-year low of 4.2 per cent.

A strong rebound in job gains is anticipated when the Labor Department releases its October nonfarm payrolls report on Friday.

Inflation is the main concern for policymakers who are wondering about the causes and duration of the current weakness. The Fed's preferred measure of inflation sits at 1.3 per cent after retreating further from target for much of the year.

Nevertheless, Yellen and other key policymakers have said the Fed, which unveiled a plan this year to cut its balance sheet starting in October, still expects to continue to gradually raise rates given the economy's strength. That is not expected to change on Wednesday.

"If we get what we expect to get, which is basically more of the same of what we saw in the September statement," said Sam Bullard, a senior economist at Wells Fargo, "then yes, their gradual policy tightening plan is in place and all signs point to a December hike."

 

First Published: Wed, November 01 2017. 13:27 IST
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