Fed to Use Rhetoric as It Holds Rate Unchanged This Week

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

That will be a big change from the last time the Fed met, 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.

This week, fresh forecasts from the Fed’s 17 officials released after the meeting 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 U.S. or global outlook.

Indeed, since the last Fed meeting U.S. inflation has shown signs of stabilizing, with one measure published by the Dallas Fed rising to 1.9 percent, its closest to the Fed’s 2 percent goal in 2-1/2 years. Meanwhile, the U.S. unemployment rate held at 4.9 percent in February, near the level many Fed officials believe represents full employment.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza