USA TODAY International Edition
Federal Reserve to meet for first time in Trump era
The Federal Reserve kicks off its two- day meeting on interest rates Tuesday — its first gathering since President Trump took office — but Wall Street isn’t expecting the U. S. central bank to raise rates again after December’s hike as it awaits more details on fiscal spending and tax changes promised by the nation’s 45th president.
At its last meeting of 2016 in mid- December, the Fed, led by Chair Janet Yellen, increased its key interest rate for the first time in a year, boosting it a quarter point to a range of 0.50% to 0.75%. The Fed also signaled that it is forecasting three more quarter- point hikes in 2017 amid an improving economy, a nation nearing full employment and an expected tick up in inflation near its 2% mandate.
The first Fed meeting since Trump’s inauguration takes on added meaning given the president’s criticism of both the Fed and Yellen during his campaign. Trump accused Yellen of using politics to guide her decisions on rates, claiming she was purposely keeping rates low to make President Obama look good and help Democratic presidential hopeful Hillary Clinton win the White House. Trump also said he would likely replace Yellen when her appointment as Fed chair expires in February 2018.
Yellen has steadfastly denied the Fed is playing politics with monetary policy and has steered clear of a public fight with the president. That’s not expected to change, said Mark Hamrick, senior economic analyst and Washington bureau chief at Bankrate. com.
“Yellen and the Fed will continue to stay as far away from politics as they can,” Hamrick told USA TODAY.
On the subject of interest rates, the odds of the Fed hiking rates are virtually nil, according to fu- tures markets, which are pricing in just a 4% chance of a quarterpoint hike Wednesday. You have to go out to the Fed’s third meeting of the year in early May before Wall Street prices in a real chance of a hike, with current odds roughly 1 in 3 closer to midyear, according to the CME Group.
“I don’t expect them to hike, but they will set themselves up for future hikes later in the year,” said Eric Stein, co- director of global income at money- management firm Eaton Vance, noting that the Fed will not be releasing fresh upcoming economic projections nor will Yellen be holding a news conference with reporters at this week’s meeting.
“The Fed is in wait- and- see mode,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management.
While Wall Street will be seeking hints about the number of Fed hikes this year and the timing of the first increase, don’t expect a definitive statement, Schutte added.
“The Fed is in no hurry to telegraph” their next move, Schutte said.
The economic picture hasn’t changed much since the Fed’s last meeting in mid- December, said Hamrick, citing another reason why Wall Street expects the Fed to stand pat on rates at this meeting.
How Trump reacts to the Fed’s policy statement will be closely watched by Wall Street.
“The Fed is in waitand- see mode.” Brent Schutte, Northwestern Mutual Wealth Management