Growth pause could keep Fed mum

Since last year, it has indicated mid-2015 for increasing the federal funds rate from 0%

The Federal Reserve dropped its reference to staying patient before raising interest rates in its policy statement in March.

But signs are that could be its stance tomorrow, when it concludes a new two-day monetary policy meeting amid a US growth slowdown and a potential financial eruption from the Greek crisis.

The Federal Open Market Committee, led by Fed Chair Janet Yellen, has put much of the financial world on edge for months waiting for its first rate hike in nearly nine years.

Since last year, it has indicated mid-2015 for increasing the benchmark federal funds rate from zero per cent, where it has stood since December 2008 to bring the US economy back from a disastrous recession.

Slow tightening

That would start a slow tightening of monetary policy, which could see the federal funds rate around one per cent at year-end. The removal of the pledge to remain “patient” from the policy statement last month was a clear indicator that the first rate hike could come as early as June, Yellen said at the time.

But since then, economic conditions have eased, with the strong dollar — itself a function of expected rising rates — hitting US sales abroad, with inflation still extremely low, and with the US labour market showing some weakness.

That, and concern that Greece could default on its debts within weeks and spark more financial turmoil, are strong reasons why the FOMC might seek to temper expectations about a June hike this week, according to analysts.

Speeches by central bank officials in the past few weeks showed “shifts in tone suggesting the Fed is prepared to be patient again,” said Chris Low, chief economist at FTN Financial.