Fed to hold rates steady,
put December hike firmly in view
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[November 01, 2016]
By Lindsay Dunsmuir
WASHINGTON
(Reuters) - The U.S. Federal Reserve is expected to keep interest rates
unchanged on Wednesday but set the stage for a hike in December amid
signs the economy is picking up steam.
The central bank has grown increasingly confident about raising rates
and Chair Janet Yellen said in September that a move before the end of
the year was likely should employment and inflation continue to
strengthen.
Data since then has shown payrolls still growing solidly while consumer
prices are showing some signs of ticking higher, putting both employment
and inflation close to the Fed's long-run estimates. Growth too has
improved, with the economy accelerating at a 2.9 percent annual pace in
the third quarter after a fairly sluggish first half.
Investors have all but ruled out a move at this week's meeting given it
takes place only a week before the U.S. presidential election. A number
of Fed officials have recently said a December rate hike would be
preferable.
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"It's widely understood that it would be politically treacherous for the
Fed to hike just before a very heated election," said JPMorgan economist
Michael Feroli, a former Fed staffer, in a note to clients.
An ABC News/Washington Post poll released on Sunday showed Democratic
candidate Hillary Clinton with a 1 percentage point national lead over
Republican rival Donald Trump, within the margin of error.
This week's Fed policy decision is due to be released at 2 p.m. EDT
(1800 GMT) on Wednesday at the conclusion of a two-day meeting. Yellen
is not scheduled to hold a press conference.
HOW STRONG A SIGNAL?
At the meeting prior to raising rates last year, the Fed firmly signaled
its intentions by including a reference to possibly raising rates "at
its next meeting."
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A police officer keeps watch in front of the U.S. Federal Reserve in
Washington October 12, 2016. REUTERS/Kevin Lamarque - RTSRYC8
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This time around it could take a softer approach. In September,
policymakers already put markets on notice by saying they decided to
stand pat "for the time being, to wait for further evidence" employment
and inflation were progressing.
The Fed could lower the bar more to "some further evidence" being
required, which may also serve to assuage the concerns of at least one
of the three voting policymakers who called for an immediate hike in
September.
With investors already expecting a December move, the Fed probably won't
feel like it needs to lock in its intentions any more than necessary,
said Lewis Alexander, chief U.S. economist at Nomura and a former Fed
staffer.
"They will probably want to do something like have Yellen give some
relatively high-profile speech a couple weeks before the [December]
meeting," he said. "That's probably a better way than putting something
in the statement that inevitably is going to be pretty cryptic."
(Reporting by Lindsay Dunsmuir; Additional reporting by Jason Lange;
Editing by David Chance and Andrea Ricci)
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