Q&A: Five things to watch for from the Fed meeting

By Jason Lange WASHINGTON (Reuters) - The U.S. Federal Reserve is expected to leave interest rates on hold on Wednesday but could flag whether it plans to cut rates later this year as U.S.

Reuters June 20, 2019 00:05:41 IST
Q&A: Five things to watch for from the Fed meeting

QA Five things to watch for from the Fed meeting

By Jason Lange

WASHINGTON (Reuters) - The U.S. Federal Reserve is expected to leave interest rates on hold on Wednesday but could flag whether it plans to cut rates later this year as U.S. President Donald Trump has demanded.

Below are questions and answers on what to look for when the U.S. central bank concludes a two-day policy meeting at 2 p.m. ET. (1800 GMT)

HOW DOES THE FED TELL US ABOUT INTEREST RATES?

The Federal Open Market Committee, the Fed's policy-setting arm, issues a written statement at the end of each of the eight scheduled meetings it holds in Washington every year. That describes the FOMC's sense of how the economy is doing and what it believes is the appropriate level of interest rates to foster maximum employment and price stability, its dual mandates assigned by Congress.

The Fed's current policy rate is set in a range of 2.25% to 2.5% and is a benchmark for the cost of credit throughout the U.S. economy and beyond. So the Fed's decision affects everything from the interest rate American consumers pay on a 30-year mortgage to how much it costs multinational corporations to raise money in the bond market.

Typically the FOMC discloses whether it has held rates the same or changed them in the second or third paragraph of the statement.

WHY IS THERE TALK ABOUT RATE CUTS?

The U.S. labor market looks strong by most measures and inflation isn't far from the central bank's 2% target, but some policymakers have flagged rising risks for the economy. Job growth is slowing, a global economic slowdown is hitting U.S. factories and America's trade war with China might be playing a role. Also, Trump is pressuring the Fed to reduce rates, saying in October the central bank had "gone crazy" under Fed Chair Jerome Powell.

Even if the Fed keeps rates steady on Friday, some Fed policymakers might signal they expect rate cuts by the end of the year or possibly in 2020. The Fed will publish alongside the policy statement an addendum of policymaker projections on where they think rates should be.

WAIT, IS IT NORMAL TO TALK ABOUT RATE CUTS?

Not at all, and there might be unintended consequences to signaling lower rates are around the corner. Some households and businesses might decide they are going to wait for lower borrowing costs before taking out a loan to by a car or a building, even if interest rates were already falling. Decisions to hold back on purchases could weigh on the economy. As key stewards of economic stability, central bankers usually avoid giving a tip that the economy is heading south.

SO HOW WILL THE FED TELL US IT'S WORRIED?

It has code words for that. When the Fed started a rate-rising campaign in 2015, it had signaled that more hikes remained in the pipeline. Its latest rate increase occurred exactly six months ago, on December 19, 2018.

Then, early this year as concerns rose about the economic outlook, the Fed began saying in its policy statement that it would be "patient" about rate changes, meaning that it was in no hurry to alter rates because of concerns about the economic outlook. The Fed has left rates unchanged at the three meetings since then.

Friday's statement might introduce a new code, perhaps borrowing from Powell's recent comments that the Fed would take actions "as appropriate" to keep the economy growing. That would be seen as a hint that it is ready to cut rates if it saw a slowdown on the horizon.

WHAT WILL TRUMP SAY?

It might depend on how the stock market reacts to the Fed's policy statement and to the answers that Powell gives reporters in a news conference scheduled for 2:30 p.m. (1830 GMT). A jump in equity prices could signal investors are more confident the Fed is going to keep the economy growing. Strong economic growth could support Trump's bid for re-election in 2020.

Reporters asked Trump on Tuesday if he wanted to demote Powell, following a report that day that White House lawyers had explored whether they could legally strip Powell of the Fed chairmanship. Trump responded: "Let's see what he does."

(Reporting by Jason Lange; Editing by Dan Burns)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.