With Fed rate hike likely, all bets are off

Having raised interest rates with steady regularity in recent months, the Federal Reserve may embrace a new message this week: Flexibility.

On Wednesday, the Fed is set to announce its fourth rate hike of the year. But after this week, no one is sure what it will do. Neither, most likely, is the Fed itself.

A confluence of factors — a global slowdown, a U.S.China trade war, still-mild inflation, stomach-churning drops in stock prices — may have left Fed officials weighing a shift in policy. Many analysts think the Fed will signal Wednesday that it’s considering whether to slow or suspend its rate hikes in 2019 to avoid weakening the economy too much. And some predict that the rate increases, which began three years ago, will end altogether next year.

In September, Fed officials collectively forecast that they would raise rates three times in 2019. But this week, in the view of many analysts, the central bank could indicate that no more than two rate hikes are likely next year.

Yet the overarching message — in a statement after its latest policy meeting, in updated forecasts for the economy and interest rates and in a news conference by Chairman Jerome Powell — may be that the Fed plans to suit its rate policy to the latest economic data. In Fed parlance, it will be “data-dependent.”

The idea, some analysts say, is that the Fed may want to pause in its credit-tightening to assess how the economy fares in the coming months in light of the headwinds it faces. Contributing to this view was a speech Powell gave last month in which he suggested that rates appear to be just below the level the Fed calls “neutral,” where they’re believed to neither stimulate growth nor impede it. Powell’s observation suggested that the Fed might be poised to soon slow or halt its rate hikes.

For now, most U.S. economic barometers are still showing strength. The unemployment rate is 3.7 percent, a 49-year low. The economy is thought to have grown close to 3 percent this year, its best performance in more than a decade. Consumers, the main driver of the economy, are spending freely.

In such an environment, the Fed would normally keep gradually raising rates to make sure the economy didn’t overheat and ignite inflation. But this time, risks to the economy appear to be rising. From China to Europe, major economies are weakening. President Donald Trump’s trade conflict with Beijing could, over time, undermine the world’s two largest economies.

Bloomberg Health care and technology stocks pushed U.S. equity indexes lower as investors considered the effect of the Federal Reserve on growth in an economy already jittery over trade, political tensions and a possible government shutdown.