WASHINGTON: With no letup in pressure from the White House, the Federal Reserve on Wednesday began the final day of a policy meeting that will be closely scrutinised for signs of a critical shift in direction on interest rates.
Most Fed watchers do not expect the central bank to move rates at the conclusion of the two-day meeting but nonetheless believe it will signal it is inclined to cut rates in the future – possibly soon – to add some juice to the economy.
Fed chief Jerome Powell is walking a tightrope between economic necessity and President Donald Trump’s insistent demands that the US central bank lower the benchmark lending rate to supercharge growth.
Trump on Tuesday afternoon continued his jabs at the Fed, implying that he was considering demoting Powell.
“Let’s see what he does,” Trump told reporters when asked if he was planning to remove Powell from the top position.
That came after his top economic adviser Larry Kudlow denied news reports the White House was considering action against Powell – whom Trump picked to lead the bank.
Trump charged the Fed had denied him “a level playing field,” compared to the easy monetary policy in Europe.
The Fed has raised rates nine times in recent years as the US economy has recovered from the global financial crisis.
“I want to be given a level playing field. So far, I haven’t been,” Trump said.
He also blasted European Central Bank chief Mario Draghi, who hinted Tuesday at further eurozone interest rate cuts, which drove the euro down against the dollar. Trump criticised the “dramatic” signal as a way to gain an advantage over the United States.
Regardless of Trump’s jawboning, the Fed may already be headed toward doing precisely what the president wants: lowering the key lending rate for the first time in a decade.
Walking a tightrope
Amid signs the global economy has begun to sputter, and as Trump’s multi-front trade wars begin their second year, top policymakers have hinted in recent weeks that they could be open to easing monetary policy.
The FOMC will release its updated quarterly forecasts on Wednesday along with the policy announcement.
But economists worldwide will be focused most closely on Powell’s press conference after the meeting.
Futures markets on Tuesday were overwhelmingly predicting rate cuts in July and September, and some economists said there was no need for the Fed to wait that long.
Jim O’Sullivan of High Frequency Economics said he expects the Fed “to express enough concern about downside risk for growth and inflation to encourage expectations for at least some easing before long.”
However, he said that might not be enough for markets, which could be disappointed if the statements don’t go far enough.
Major US indices rose 1% or more on Tuesday on optimism about the Fed and upbeat comments from the US and China ahead of next week’s G20 summit, but opened flat on Wednesday as they awaited the Fed announcement.
The world’s largest economy has given off mixed signals in recent months, with slowing job gains, weak manufacturing, and sluggish home construction offset by healthy consumer spending, very low unemployment and tepid inflation.
Fears about a growing risk of a US recession, slackening growth in Europe and Asia and the intensifying trade war with China have caused investors to clamor for support from the Fed.
But Kathy Bostjancic, chief US financial economist at Oxford Economics, told AFP the Fed would likely walk a fine line of suggesting a rate cut was possible but not guaranteed.
So far, economic data do not justify easing policy, she added.
“I also believe the downside risks have increased but they haven’t yet seen the evidence in the hard data to suggest a rate cut is warranted,” she said.