US Fed likely to stand put on rates

The Myanmar Times - - International | Business -

WHEN the US Fed­eral Re­serve is­sues its next in­ter­est rate de­ci­sion to­mor­row, the dawn of a bit­terly fought pres­i­den­tial elec­tion day will be only 136 hours away.

Trail­ing in opin­ion polls, Repub­li­can nom­i­nee Don­ald Trump has lam­basted the cen­tral bank and ac­cused it of ar­ti­fi­cially sup­press­ing rates to help Pres­i­dent Barack Obama – a charge Fed chair Janet Yellen has em­phat­i­cally de­nied.

Most ob­servers ex­pect the Fed’s Fed­eral Open Mar­ket Com­mit­tee, which sets in­ter­est rate pol­icy, to stand pat, see­ing no press­ing need to act, es­pe­cially be­fore an elec­tion.

While Fed mem­bers are di­vided on the dan­gers of in­fla­tion, the ma­jor­ity are ex­pected to vote to leave rates at their his­tor­i­cally low tar­get range of 0.25-0.5 per­cent for one more month.

By law, the Fed is in­su­lated from po­lit­i­cal pres­sures and its bud­get is not set by Congress. An­a­lysts agree there is no sign elec­toral pol­i­tics are in­flu­enc­ing the Fed’s think­ing.

The two-day meet­ing more likely will be fo­cused on set­ting mar­ket and in­vestor ex­pec­ta­tions for the fi­nal rate meet­ing of the year in De­cem­ber.

The FOMC di­vi­sions – which re­vealed a mi­nor­ity favour­ing rate hikes sooner rather than later to head off in­fla­tion – showed it has faced tough de­ci­sions.

So far in 2016, they have re­frained from act­ing in or­der to avoid in­ter­rupt­ing the mild re­cov­ery. Job cre­ation has been rel­a­tively strong. But wage growth has been slug­gish, so the job mar­ket has not pro­duced un­equiv­o­cal signs of in­fla­tion.

At the Septem­ber meet­ing, pol­i­cy­mak­ers said the de­ci­sion not to raise rates was a “close call”. Three of the 10 vot­ing mem­bers dis­sented and called for a rate hike.

Since that meet­ing, US eco­nomic data has re­mained spotty. The econ­omy grew a ro­bust 2.9pc in the third quar­ter sub­ject to re­vi­sion. A re­spectable 156,000 jobs were added in Septem­ber, and the un­em­ploy­ment rate has re­mained steady at around 5pc.

But in­fla­tion, as mea­sured by the Fed’s pre­ferred per­sonal con­sump­tion ex­pen­di­tures in­dex, slowed in the July-Septem­ber pe­riod to 1.4pc from 2pc in the prior quar­ter, which was the first time it had hit the Fed’s tar­get since early 2014.

The Fed will have two more jobs re­ports – and a his­toric elec­tions re­sult – to con­sider be­fore the De­cem­ber 13-14 meet­ing.

Brian Jacobsen of Wells Fargo Funds agreed there is lit­tle ev­i­dence Fed de­ci­sion mak­ing has been dic­tated by the po­lit­i­cal cal­en­dar.

Sarah Bin­der, se­nior fel­low at the Brook­ings In­sti­tu­tion, said the Fed’s in­de­pen­dence is tem­pered by its need to avoid po­lit­i­cal storms.

“Their life is not made any eas­ier by be­com­ing the tar­get of an­gry law­mak­ers,” Ms Bin­der told AFP. “I think in re­al­ity the Fed needs po­lit­i­cal sup­port to make tough choices. Get­ting ag­gres­sively out of synch of po­lit­i­cal and pub­lic opin­ion, that’s a tough thing to do.” –

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