The dollar stood steady in Asia on Wednesday just hours before the Federal Reserve was expected to take a major step toward lifting interest rates for the first time in almost nine years. A Fed statement is due at 1800 GMT, followed half an hour later by a press conference with Chair Janet Yellen. The central bank will also release members’ forecasts for inflation and interest rates, and some analysts suspect the trajectory of future increases could be lowered.
A string of strong payroll reports has left the strong impression the Fed will drop its reference to being patient on policy but still make a rate increase conditional on economic developments, in particular inflation. “Our baseline view is that the Fed can start its normalization process around mid-year,” said Tom Kenny, an analyst at Australia and New Zealand Bank.
“That said, any further drift lower in core inflation could see it delayed, as could an aggressive appreciation of the dollar,” he added. “Yellen’s outlook for the dollar, core inflation and wages will be critical.” Fed funds have been stuck between zero and 0.25 percent since the end of 2008 and the last time the Fed raised interest rates was in mid-2006.
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