Fed Expected to Hold But Outlook To Give More Hints

The financial world is awaiting the Federal Reserve’s response to a critical question: How stable are the world’s economies and financial markets?

Whatever picture the Fed sketches will help shape expectations of when it will resume the interest rate increases it began in December. That’s when the Fed raised its key rate from record lows to reflect an economy finally strong enough 6.5 years after the Great Recession ended to withstand higher loan rates.

Yet in the ensuing weeks, stocks and oil prices tumbled and China struggled to manage a sharp slowdown. Now, with investors having regained some of their losses, with the U.S. job market improving and major overseas economies still-weak but stable, the Fed may be inching closer to raising rates again.

Just not yet.

Most Fed watchers think the central bank wants more time to assess the financial landscape. Resuming its rate hikes too soon could slow growth or rattle investors again. In a policy statement and a news conference Chair Janet Yellen will give after its latest meeting ends Wednesday, the Fed will likely nod to improvements since it met in January but also stress uncertainties that still loom.

“Financial markets have stabilized a bit, but the situation abroad still looks worse than in the United States,” said Diane Swonk, chief economist of DS Economics. “The Fed will give some signals that they feel better about where things are now compared to January but also signal that they don’t have an itchy trigger finger in terms of raising rates.”

The Fed has two mandates: To maximize employment and keep prices stable. It has essentially met just one: In February, the United States added a robust 242,000 jobs — roughly the monthly average for the past six months. And the unemployment rate is a low 4.9 percent, close to the rate the Fed associates with full employment.

via Mainichi

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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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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