Fed likely to keep rates steady as it awaits Trump economic plan

WASHINGTON: The US Federal Reserve is expected to keep interest rates unchanged in its first policy decision since President Donald Trump took off ice, as the central bank awaits greater clarity on his economic policies.

Trump has promised a large infrastructure spending programme, tax cuts, a rollback of regulations and a renegotiation of trade deals but has offered few details or a timeline for their rollout since his victory in the Nov 8 election.

The central bank’s latest policy decision is scheduled to be released at 2 pm EST (1900 GMT) on Wednesday at the conclusion of a two- day meeting. Fed Chair Janet Yellen is not due to hold a press conference.

The policy decision will come a week after Yellen underscored that the US economy is near full employment and warned of a ‘ nasty surprise’ on inf lation if the Fed is too slow with its rate hikes.

Economists polled by Reuters have all but ruled out a rate increase at this week’s meeting. Investors next see an interest rate rise in June, according to Fed futures data compiled by the CME Group.

The Fed raised its benchmark interest rate at its last policy meeting in December, the second such move in a decade, to a target range between 0.50 per cent and 0.75 per cent. It forecast a further three rate increases this year.

De s p i t e enc ou r a g i n g US economic data, Fed policymakers are currently hampered in assessing how quickly inflation might rise until they have more information on Trump’s economic plans.

“At the moment there’s i nc r ed ible unc e r t a i nt y surrounding fiscal policy and the potential for stimulus and the composition of that,” said Paul Ashworth, an economist at Capital Economics. “The Fed can’t react until it knows what to react to.”

Wit h the US economy already bumping up against ful l employment, Trump’s promises on fiscal stimulus and tax reform could quickly spur higher inf lation as would imposing tariffs on Mexican imports.

That may cause Fed policymakers to raise rates faster.

Other policies, such as an immigration crackdown, go against what the Fed argues the US economy needs to grow over the long term.

US stocks fell on Monday after Trump curtailed travel and immigration to the United States from seven predominant ly Muslim countries.

The S& P 500 index is still up roughly 6 per cent since Trump’s victory and the robustness of the domestic economy makes the United States increasingly divergent from Japan, the euro zone and Britain, none of which are expected to raise rates anytime soon.

The Fed will likely only make minor tweaks in its pol icy statement on Wednesday to reflect a string of positive recent economic reports.

“Changes to the ... statement should be most ly upbeat,” Roberto Perli, an economist at Cornerstone Macro LLC, said in a note to clients.

The US unemployment rate is 4.7 per cent and business investment has improved, despite a slowdown in fourthquarter economic growth caused mostly by a widening t rade def icit . Consumer spending, which accounts for more than two- thirds of the nation’s economic activity, rose solidly in December, according to Commerce Department data released on Monday.

In the same report, the Fed’s closely-watched inflation gauge also edged up to 1.7 per cent. — Reuters