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 The world's most powerful central bank hasn't hiked rates in about a
decade and markets see virtually no chance it will do so at the end
of this week's two-day policy meeting. The Fed is scheduled to
announce its rate decision at 2 p.m. ET (1800 GMT).
A spate of dismal data on the U.S. and global economies has fueled a
public row between Fed Chair Janet Yellen and fellow policymakers,
igniting speculation the central bank will wait until 2016 to begin
its "liftoff" from near-zero rates.
Forty-six economists polled by Reuters unanimously expect the Fed on
Wednesday to keep its target rate for overnight lending between
banks steady at 0 percent to 0.25 percent, as it has since 2008 when
it embarked on an effort to nurse the economy back from a severe
recession.
A narrow majority of the economists expect a rate increase in
December. Financial markets assign only a 30 percent chance for a
December hike and a 54 percent chance for such a move in March.
Signaling that a rate hike is coming will be difficult in part
because Yellen, who has said higher rates will be "appropriate" this
year, is not scheduled to hold a news conference after the end of
the policy meeting.
The Fed could lay some of the tightening groundwork by using its
policy statement to signal it has fewer concerns about global
growth. Recent U.S. economic reports, however, have raised doubts
about the strength of the world's largest economy, and it could be
weeks before central bankers have enough new data to feel
comfortable lifting rates.
That means the statement on Wednesday could resemble the one from
last month's policy meeting. But September's disappointing
employment report - non-farm payrolls grew by only 142,000 - has
cast doubt on the sustainability of the jobs recovery and undercut
the argument for hiking rates.
"It pays for them to take the low-risk path of least resistance and
not really change things in a big way, and then see how the data
is," said Michael Feroli, an economist at JPMorgan.
'NOT-THIS-YEAR CAMP'
Most Fed policymakers have said they expect to raise rates in 2015,
but two broke ranks with Yellen this month, questioning her view
that labor market tightness will fuel inflation and overheat the
economy.
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Fed Governors Lael Brainard and Daniel Tarullo urged caution,
arguing slower growth abroad could sap U.S. economic strength and
keep inflation too low. With Chicago Fed President Charles Evans,
that puts three members of the rate-setting Federal Open Market
Committee in the "not-this-year camp".
Compounding the situation, central banks from the euro zone to China
are easing policy, keeping upward pressure on the U.S. dollar which
hurts American exporters and acts as a brake on inflation.
That, in turn, is complicating Yellen's job to guide the Fed and
seek consensus within the FOMC.
The Fed's struggle to communicate clearly under Yellen, who took the
reins of the central bank less than two years ago, raises the risk
investors will be overly surprised by policy changes, leading to
financial market volatility and further straining the global
economy. It also raises the risk of greater splits and
miscommunication that could derail the rates liftoff.
Economists expect Yellen's scheduled public appearances in December,
which will come after hiring data for October is released, could
offer a better idea as to whether a hike will come at the Dec. 15-16
policy meeting, the last of the year.
"We look for very minimal changes in the statement and ... for
verbal communications after the meeting, in speeches and interviews,
to say, 'Yes, December remains a possibility,'" said Michael Gapen,
Barclays' chief U.S. economist.
(Reporting by Lindsay Dunsmuir and Jason Lange; Editing by Paul
Simao)
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