Fed expected to resume modest interest rate hikes

WASHINGTON — The Federal Reserve’s first meeting under Jerome Powell’s leadership will likely end Wednesday with an announcement that the Fed will resume its modest interest rate hikes.

But investors will be most attuned to what Powell signals at his first news conference about whether and how he might steer the Fed’s policymaking differently from his predecessor, Janet Yellen. Will he, for example, be inclined to step up the pace of Fed rate hikes?

Powell hasn’t yet tipped his hand. Speaking to Congress last month, the new chairman said his “personal outlook” on the economy had strengthened since December, when the Fed’s policymakers collectively forecast three rate hikes for 2018, the same as in 2017.

That comment helped send stocks tumbling because it suggested that the Fed might be about to accelerate the gradual pace it had pursued under Yellen. More aggressive rate increases would likely slow the economy and make stocks less appealing.

Yet when he testified to Congress again two days later, Powell tempered his view: He stressed that the Fed still thinks it has room to maintain a moderate pace of rate hikes, in part to allow Americans’ average wages, which have stagnated for years, to pick up. The impression was that he might not favor raising rates faster than Yellen did after all — at least not yet.

That said, few doubt that the Fed will announce when its policy meeting concludes that it will resume raising rates, after having most recently done so in December. A healthy job market and a steady if unspectacular economy have given the Fed the confidence to think the economy can withstand further increases within a still historically low range of borrowing rates.