When it last met in late January, the central bank’s policy-setting group, the Federal Open Market Committee, reiterated that it “can be patient in beginning to normalize the stance of monetary policy” given economic conditions.
A change in that language this afternoon would signal that the central bank is poised to hike its benchmark fed funds rate, now effectively zero, as the U.S. economy, notably the jobs market, perks up.
“With the labour market still evidently on fire in February, we expected the FOMC statement … to omit the language that the Fed can be ‘patient’ in beginning to normalize monetary policy,” said Paul Ashworth of Capital Economics.
“Even with headline inflation below zero, we then anticipate a first hike in June, with the FOMC pushing the target range for the fed funds rate to 1 per cent to 1.25 per cent by the end of this year and 2.75 per cent to 3 per cent by end-2016.”
While they expect the Fed to lose patience, observers aren’t certain about what exactly the Fed will signal.
“The renewed strength of the USD and its influence in containing inflation pressures (above and beyond weak oil prices …) is an added wrinkle that has some questioning a June lift-off, though that remains our base case,” said Mark Chandler and Paul Borean of RBC Dominion Securities, referring to the U.S. dollar by its symbol.
RBC also expects the Fed to raise its economic growth forecasts today.