INSUBCONTINENT EXCLUSIVE:
Authors: TheIndianSubcontinent News AgencyWASHINGTON: The US Federal Reserve is set to hold interest rates steady this week but will likely
further encourage expectations that it will lift borrowing costs in June on the back of rising inflation and low unemployment.
Investors
have all but priced out the chance of a rate hike at the end of the Fed's two-day policy meeting on Wednesday, particularly given its
adherence in recent years to only raising rates at meetings that are followed by press conferences.
The central bank is due to announce its
EDT (1800 GMT) on Wednesday
Fed Chairman Jerome Powell is not scheduled to hold a press conference.
"Fed speakers have done little to push back against this expectation
we expect no fireworks," JPMorgan economist Michael Feroli said in a note to clients.
The Fed raised its benchmark overnight lending rate
at its March 20-21 meeting by a quarter per centage point to a target range of between 1.50 per cent and 1.75 per cent.
It currently
forecasts another two rate rises this year, although an increasing number of policymakers see three as possible
The Fed's next policy meeting after this week is scheduled for June 12-13
Investors overwhelmingly see a rate hike then.
The pace of rate increases has picked up since the central bank began its tightening cycle in
It raised rates once in 2016, but lifted borrowing costs three times last year amid a strengthening economy.
Unemployment is at a 17-year
low of 4.1 per cent and the Trump administration's tax cuts and fiscal stimulus are expected to further juice the economy.
RISING INFLATION
PRESSURESAhead of this week's meeting, Powell has stuck to flagging a middle-of-the-road approach on rate increases in the face of data
showing the robust economy had not yet triggered a jump in inflation.
Data on Monday, however, showed that price gains are now near the
Fed's 2 per cent target.
The Fed's preferred measure of inflation soared 1.9 per cent in the 12 months through March, the biggest increase
since February 2017, after increasing 1.6 per cent in the year through February, the US Commerce Department reported.
"The real headache is
that it is easy to be the Fed when inflation is below target a very important aspect as we go into this May meeting, is the tone of the
debate changes completely as we get to 2 per cent and beyond," said Torsten Slok, an economist at Deutsche Bank.
Other data last week showed
that while US economic growth slowed to an annualized rate of 2.3 per cent in the first quarter, wages and salaries shot up 0.9 per cent
That was the largest increase since the first quarter of 2007.
Fed policymakers have also been wary about the potential negative impact of
the Trump administration's protectionist trade policies.
A US trade delegation is expected to meet Chinese officials in Beijing on Thursday
and Friday after weeks of tensions between the world's two largest economies.
President Donald Trump has proposed imposing tariffs on $50
billion in Chinese exports and threatened to slap them on another $100 billion in Chinese goods
China, in response, has said it will impose its own tariffs on American products.
However, few economists expect any mention of trade risks
in the Fed's policy statement on Wednesday and see any tweaks as likely to be confined to upgrading the language on inflation to reflect
that it is now effectively at target.
