Fed to jack up rates as Trump economy looms
There is little room for doubt that the US Federal Reserve will raise the benchmark interest rate in the coming week for only the second time in a decade. With unemployment at a nine-year low, jobs being created at an average of 180,000 per month, the economy growing at better than three percent in the most recent quarter and some signs of a pickup in inflation, the writing is on the wall.
Some members of the Federal Open Market Committee, which sets the key federal funds rate, the basis for mortgage and lending rates, have even cautioned that failing to raise rates in December could harm the central bank’s credibility, given expectations set by policymakers in recent months.
“All the necessary and sufficient conditions are there,” Mark Zandi, chief economist at Moody’s Analytics, told AFP.
With a rate hike assumed, the question remains whether Wednesday’s move will be the first in a series.
That was what central bankers thought was going to happen a year ago, when they announced the start of the “normalization” of interest rates after keeping them at zero in the wake of the 2008 financial crisis.
‘Normalization’ under Trump?
But the Fed’s efforts to turn the page on monetary stimulus with gradual tightening quickly went off track, despite forecasts for up to four rate hikes in 2016.
Seven times this year, the FOMC declined to raise rates, impeded by poor US economic data, Britain’s shock June vote to exit the European Union, and above all by fears of interrupting a fragile recovery.
And analysts said there were no guarantees 2017 would see the beginning of a tightening cycle either, given uncertainties in geopolitics and the yet-to-be-determined policies of President-elect Donald Trump, who shocked the world last month by winning the US election while offering proposals scant on specifics.
A Wall Street Journal poll of economists this week put the Federal funds rate at an average of 1.26 percent by December 2017, implying four rate increases. A Reuters poll projects three rate increases.