Fed Caught Between Low Inflation and Strong GDP Growth

September 20, 2017 Share Print 0

Caught between a lull in U.S. inflation and a stronger global economy, the Federal Reserve is expected on Wednesday to signal whether it will raise interest rates for a third time this year or back off until prices rise more briskly.

The U.S. central bank’s description of inflation in its policy statement as well as fresh economic forecasts from individual policymakers will be the main focus for financial markets amid a recent spate of lukewarm domestic data.

The policy statement and projections are due to be released at 2 p.m. EDT (1800 GMT). Fed Chair Janet Yellen will hold a press conference half an hour later.

The Fed also is likely to announce a scheduled reduction of its approximately $4.2 trillion in holdings of bonds and mortgage-backed securities, most of it accumulated in response to the 2007-2009 financial crisis and recession.

That plan, anticipated by markets and not expected to have much immediate impact, will limit the amount of maturing bonds used each month to purchase new ones. The initial cut in reinvestment will be $10 billion per month, probably beginning in October.

Analysts and investors, however, say they will look more intently at policymakers’ forecasts for the end-of-year federal funds rate as an indication of whether a quarter-point increase widely expected in December is likely to occur.

via Reuters

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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.