3 key issues facing Federal Reserve

Fed chairman today updates interest rate, trade war and economy.

The Federal WASHINGTON —

Reserve is likely to leave interest rates alone when its latest policy meeting ends today. But expectations are high that the Fed and its chairman, Jerome Powell, will signal that a rate cut may come soon for the first time in more than a decade.

Behind the Fed’s thinking is concern about possible economic harm resulting from the Trump administration’s trade war with China and signs that the global economy is weakening.

Investors were cheered by the notion that this meant at least one rate cut might be on the way. What remains unknown is just when the Fed will reduce its key short-term rate.

The Fed’s two-day meeting will end this afternoon. When it does, the Fed will issue a statement and update its economic and interest-rate projections. Here are three things to watch for:

A coming rate cut?

The Fed has been saying in its policy statements since January that it will be “patient” in adjusting its key short-term rate. This rate influences many consumer and business loans, from credit cards to home equity credit lines to small-business loans.

That single word helped calm fears that had surfaced after the Fed raised rates four times in 2018 and signaled that further hikes were likely this year.

Trade war threats

In pledging to safeguard the economic expansion Powell said the Fed was monitoring trade and other developments that could imperil the economy. He noted that “we do not know how or when these issues will be resolved.”

This week’s Fed events precede President Donald Trump’s trip to a summit of the Group of 20 major nations in Japan where he will meet with President Xi Jinping of China late this month. That meeting has raised hopes for a possible breakthrough in the U.S.-China trade war.

State of the U.S. economy

Most analysts say they think growth, as measured by the gross domestic product, has slowed sharply in the current April-June quarter to around a 1.5% annual rate, only about half the pace of the past year.

The Fed will update its forecast for GDP. The updated views on growth, unemployment and inflation could provide clues on what the Fed might do with interest rates, which has remained in a range of 2.25% to 2.5% this year. Investors will want to see how many Fed officials envision looser credit in the coming months.