Investors eye Fed forecast with a hike all but certain

WASHINGTON •Anotherinterest rate increase is all but certain when the U.S. Federal Reserve meets this week. What’s not so sure is whether the vigorous U.S. economy will lead the Fed to accelerate its rate hikes in the months ahead — a move that could raise the risk of a recession.

When it last met in May, the Fed left its short-term rate unchanged. But it noted inflation was edging near its two-per-cent target after years of remaining undesirably low. Should inflation eventually pick up, the Fed might move to tighten credit more aggressively. The challenge would be to do so without slowing growth so much as to cause a downturn.

Investors are eagerly awaiting the updated economic forecasts the Fed will issue when its meeting ends Wednesday. Among other things, the forecasts will show whether the policymakers still foresee a total of three rate increases for 2018, as they predicted three months ago, or whether they now envision four. The Fed has so far raised its key rate once this year, in March.

A gradual rise in inflation is coinciding with newfound economic strength. After years in which the economy expanded at roughly a tepid two-per-cent annually, growth could top three per cent this year. Consumer and business spending is powering the economy, in part a result of the tax cut President Donald Trump pushed through last year.

With employers hiring at a solid pace month after month, unemployment has reached 3.8 per cent. Not since 1969 has the jobless rate been lower.