WASHINGTON (AFP) – The Federal Reserve is expected to maintain its slow march toward a normal monetary stance in its policy meeting Tuesday and Wednesday.
But a small, key adjustment to its messaging could confirm growing confidence in the economy.
After the surprisingly poor jobs market report for August, pressure has alleviated somewhat on the Federal Open Market Committee from so-called inflation hawks to move soon to raise interest rates.
And although US economic data Friday showed encouraging improvements in consumer spending and confidence, it likely is not enough to sway the FOMC off its plan to increase interest rates only as early as mid-2015.
“We expect the FOMC to have a moderately hawkish tone at its 16-17 September meeting,” said Thomas Costerg at Standard Chartered.
“The FOMC may update its exit principles, but there should be no surprises.”
The FOMC’s main policy action of the past year, the steady reduction of its once-$85 billion a month bond-buying stimulus programme, will continue with the aim of winding it up completely in October.
The next step after that would be to begin raising the benchmark fed funds interest rate, stuck at zero since the end of 2008, and now blamed for overheating asset markets around the globe.
So far the Fed has stuck to its forecast – based on the averaged expectations of FOMC members – that interest rates won’t be lifted before the second half of 2015, and only slowly after then.
So far, too, inflation has remained repressed, providing the hawks with little to back their calls for an earlier rate hike.
But the labour market, and how that will shape inflation, remains a conundrum, and the FOMC is unlikely to change policy until they are more clear about it.
After seven straight months over 200,000, job generation plunged to 142,000 in August, raising questions over whether the economy is weaker than even doves like Fed chair Janet Yellen had thought.