Fed set to hold rates steady ahead of Trump's leadership
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[November 01, 2017]
By Lindsay Dunsmuir
WASHINGTON (Reuters) - The Federal Reserve
is expected to keep interest rates unchanged on Wednesday as speculation
swirls on who will be its next leader, but the U.S. central bank will
likely point to a firming economy as it edges closer to a possible rate
rise next month.
The Fed has raised rates twice since January and currently forecasts one
more hike by the end of the year as part of a tightening cycle that
began in late 2015.
Investors have all but ruled out a move at the end of this week's
two-day policy meeting. The Fed is due to issue its latest policy
statement at 2 p.m. EDT (1800 GMT).
Markets will look to it for confirmation the central bank is on track
for a December rate hike, though attention will quickly turn to who will
be in charge of monetary policy at the end of Fed Chair Janet Yellen's
first term in February 2018.
President Donald Trump, who has interviewed Yellen, Fed Governor Jerome
Powell and three others for the top Fed job, is likely to announce the
nomination on Thursday.
Powell, a soft-spoken centrist who has supported Yellen's gradual
approach to raising rates, is seen as having a lock on the position.
"The bottom line is the meeting is probably going to be a somewhat
boring event for markets, overshadowed by the expected Fed chair
decision," said Torsten Slok, chief international economist for Deutsche
Fed policymakers have been buoyed in recent months by a strengthening
U.S. economy and further tightening in the labor market, although
inflation has continued to remain below the central bank's 2 percent
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Federal Reserve Chairman Janet Yellen speaks during a news
conference after a two-day Federal Open Markets Committee (FOMC)
policy meeting in Washington, U.S., September 20, 2017.
REUTERS/Joshua Roberts/File Photo
The economy unexpectedly maintained a brisk pace of growth in the third
quarter, increasing at a 3.0 percent annual rate, the Commerce
Department reported last week.
A decline in hiring in September also has largely been dismissed as a
blip caused by the temporary displacement of workers due to Hurricanes
Harvey and Irma. That jobs report also showed wages growing at an
encouraging pace and the unemployment rate falling to more than a
16-1/2-year low of 4.2 percent.
A strong rebound in job gains is anticipated when the Labor Department
releases its October nonfarm payrolls report on Friday.
Inflation is the main concern for Fed policymakers who are wondering
about the causes and duration of the current weakness. The Fed's
preferred measure of inflation sits at 1.3 percent after retreating
further from target for much of the year.
Nevertheless, Yellen and other key policymakers have said the Fed, which
unveiled a plan this year to cut its balance sheet starting in October,
still expects to continue to gradually raise rates given the economy's
strength. That is not expected to change on Wednesday.
"If we get what we expect to get, which is basically more of the same of
what we saw in the September statement," said Sam Bullard, a senior
economist at Wells Fargo, "then yes, their gradual policy tightening
plan is in place and all signs point to a December hike."
(Reporting by Lindsay Dunsmuir; Editing by Paul Simao)
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