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US Fed on hold but investors await signals on inflation fears
WASHINGTON, Nov 8, 2018 (BSS/AFP) – No US economists believe the Federal
Reserve will raise the all-important benchmark interest rate on Thursday but
they are watching closely for any signals about how concerned the central
bankers are about rising prices.
With the economy growing strongly and wages at long last starting to
increase after years of robust job creation, central bank officials are wary
the economy could overheat.
Investors will be looking for any sign about how aggressive the Fed will
need to be. But they are unlikely to find it in the statement due out at 1900
GMT, partly because the Fed officials don’t yet know.
“The Fed today will do nothing to rates and won’t materially change the
language of the post-meeting statement,” economist Ian Shepherdson of
Pantheon Macroeconomics, said in a research note.
“The economic picture hasn’t changed meaningfully since the September
meeting, despite the gyrations in the stock market.”
The Fed has raised the key interest rate — that influences everything
from credit cards to mortgages to car loans — eight times since December
2015, including three times this year.
Most economists expect the next move to come in December, the final
meeting of the year for the policy-setting Federal Open Market Committee
(FOMC), with three more increases next year.
Going into the 10th year of recovery from the 2008 financial crisis,
robust growth has pushed unemployment to historic lows, while inflation has
so far remained right at the two percent target.
But while the absence of pay increases baffled economists and central
bankers in recent years, Americans are finally seeing wages start to gain
faster than the inflation rate.
Fed communications and policymakers have said repeatedly they expect to
continue the gradual pace of reducing the stimulus in the economy, which will
allow growth to continue while keeping inflation low.
How long that gradual pace can continue is unclear and likely requires
more data on whether the wage increases are poised to feed into inflation.
But that fine tuning is difficult and as many economists have pointed out,
virtually every Fed tightening cycle has ended in an economic downturn.
And the situation is complicated by the impact of President Donald Trump’s
confrontational tariff policies that have raised costs and increased
uncertainty for many companies nationwide.
GDP expanded at a 3.5 percent clip in the third quarter, partly boosted by
massive corporate tax cuts, but economists project the US economy will slow
in 2019.
The Fed meeting is happening as the dust settles from Tuesday’s midterm
elections, which left Democrats in position to curtail Trump’s ambitions for
economic policy.
BSS/AFP/HR/0938