Cape Times

Investors focused on Fed’s policies

- Howard Schneider

WITH the Federal Reserve virtually guaranteed to raise interest rates this week, investors are focused on how the US central bank characteri­ses its monetary policy as borrowing costs return to more normal levels amid an ongoing economic expansion.

In what could be the most consequent­ial rewrite of its policy statement in two-anda-half years, the Fed may signal how close it is to stopping its rate hike cycle, whether faster economic growth warrants ramping up the pace of tightening, and if it feels the era of loose money is, in effect, over.

The language in the Fed policy statement “is growing increasing­ly stale with each successive rate hike,” Goldman Sachs economists Spencer Hill and Jan Hatzius wrote ahead of the start yesterday of the central bank’s two-day policy meeting.

Hatzius predicted the policy-setting Federal Open Market Committee will, at the least, drop language it has used since late 2015 that says rates would remain below historical levels “for some time” to come. Normal That small change would mark a broad acknowledg­ement that, nine years into the second-longest US economic expansion on record, monetary policy and the economy in general are starting to look increasing­ly normal, both domestical­ly and abroad.

The Fed’s current monetary policy tightening cycle began in December 2015, and it has started trimming the massive portfolio of US Treasury bonds and mortgage-backed securities that it bought to boost the economy after the 2007-2009 recession.

The European Central Bank is expected later this week to outline its own plans to stop emergency asset purchases, highlighti­ng Europe’s rebound from crisis.

Global growth has remained strong this year despite the risk of a global trade war and concerns about rising levels of sovereign debt.

The Fed’s policy statement and fresh economic projection­s are due to be released at 8pm this evening (local time).

Fed chairperso­n Jerome Powell is scheduled to hold a press conference half an hour later.

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