seen keeping interest rates steady amid market
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[January 27, 2016]
By Jason Lange
WASHINGTON (Reuters) - The Federal Reserve
is expected to leave interest rates unchanged on Wednesday and
acknowledge that turmoil in financial markets threatens its upbeat view
of the U.S. economy, leaving the chances of a March hike diminished but
All 69 analysts in a Reuters poll see the central bank keeping its
key overnight lending rate in a range of 0.25 percent to 0.50
percent when it issues its policy statement following a two-day
meeting. The decision is due at 2 p.m. EST (1900 GMT).
A month-long plunge in U.S. and world equities has raised concerns
that an abrupt global slowdown could act as a drag on the U.S.
economy, with investors now betting on only one quarter-point rate
hike in 2016 instead of the four signaled in Fed policymakers'
economic forecasts last month.
The Fed probably does not want to appear too worried by market and
economic volatility that could prove temporary, and its rate-setting
committee may soften concerns by pointing to solid U.S. job growth.
Many economists expect the central bank to say in its policy
statement it is closely following global economic and financial
events, as it did following a bout of market turbulence last summer.
That language did not appear in its December statement.
"This would constitute a moderate acknowledgement of risks that
avoids shutting the door to a March hike," Goldman Sachs economist
David Mericle said.
U.S. economic growth will accelerate this year to 2.4 percent from
2.1 percent last year, according to the median forecast of Fed
policymakers last month. New forecasts are not due until March.
Prices for Fed funds futures imply that investors currently see
about a 30 percent chance of a rate increase in March, a move that
would make the likelihood of four hikes over the year more
The Fed raised rates by a quarter point on Dec. 16 in a sign the
economy had largely recovered from the 2007-2009 financial crisis
and recession and was shrugging off weakness in China, Japan and
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U.S. exports took a hit last year, in part due to the impact of a
strong dollar <.DXY>, but consumer spending accelerated and overall
employment surged by 292,000 jobs in December.
Investors saw almost no chance of a January rate hike and expected
only two hikes for the whole year even before the Standard & Poor's
500 index <.SPX> fell 8 percent in the first three weeks of the
Oil prices have also plummeted this year, which could keep U.S.
inflation below the Fed's 2 percent target for longer, but a recent
uptick in the consumer price index outside of food and energy could
point to a stronger medium-term inflation outlook.
Fed policymakers will be able to sift through the January and
February employment reports before their March 17-18 policy meeting.
"The Fed has the luxury of waiting to see what happens," economists
at Cornerstone Macro wrote in a note to clients last week, saying
the central bank's challenge will be to balance financial market
concerns with "the encouraging news on both the employment and
(Reporting by Jason Lange in Washington; Editing by Paul Simao)
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