WASHINGTON – The first meeting of the US Federal Reserve (Fed) under the leadership of Jerome Powell will possibly end on Wednesday along with a report that the Fed will continue with its modest hikes in interest rates.
In his statement to the Congress in February, the newly seated chairman mentioned that his own viewpoint on the economy had fortified since December when the policymakers of the Fed forecast jointly three increases in rate this year, just as in 2017.
Powell’s remark helped cause stocks to plummet due to the indication that the Fed might be in the process of accelerating the moderate pace pursued under the leadership of Janet Yellen. Further aggressive rate hikes would probably decelerate the economy and, thus, make stocks less alluring.
However, 2 days later, when he once again testified to the Congress, he counterbalanced his opinion by emphasizing that the US Fed still believes it has the capacity to preserve its gradual pace of rate hikes, partly to let average wages of Americans to speed up, which have declined for several years.
In spite of indications, the perception was that Powell might not yet approve rate hikes right away compared to how Yellen did.
Because of that, few hesitated that when the Fed’s policy meeting finalizes, it will declare continuation of rate hikes, following recent increases in December. A robust job market and, if not spectacular, a steady economy have granted confidence to the Fed to believe that the economy is able to endure additional hikes in the midst of historically low-range borrowing rates.
Financial markets have been tense for weeks, caused in part by the chairman’s changing remarks. A precise growth increase in wage recorded in the jobs report for January triggered distress that higher costs of labor would result in higher rate hikes and eventually in higher interest rates. Stocks dropped on the report. But succeeding reports on inflation and wages have been gentler, allowing markets to have stabilized.
The jobs report for February emphasized on a surprisingly strong labor market: Employers tossed 313,000 jobs, being the largest gain in almost 2 years. The rate of unemployment remained at 4.1%.
The primary fuel of the economy, consumer spending, has currently slowed and has resulted in a lot of economists to lower their growth prediction for the January–March quarter. Some currently foresee a 1.7% yearly growth rate for the said quarter.
Nevertheless, forecasts for this whole year still expect a boost later this 2018, partially resulting from the encouraging outcome of the extensive tax cuts that US President Donald Trump swept through the Congress in December and a budget contract in January to increase government expenditure for over 2 years by 300 billion dollars.
Given the job market stays healthy and economic growth speeds up, the Powell-led Fed is regarded to possibly pick up its rate increases, from three hikes it predicted in December last year to four this 2018. The US Fed’s base interest rate, even after five rate hikes over the past 27 months, still stays in low range of 1.25% to 1.5%, higher from a low record of almost zero in December 2015. The slightly higher key rate of the Fed has in part caused higher rates of consumer loan, which includes home mortgages.
Aside from announcing its decision on rates this Wednesday, the Fed will give updates on its quarterly prediction, which will indicate its growth, inflation, and unemployment expectations and the presumed rate hike pace over the following 3 years.
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