Federal Reserve minutes could indicate how fast rates will rise
What do Federal Reserve policymakers really think about the future pace of interest rate hikes? Minutes of the Fed’s March meeting, which featured a rate increase, could help answer that question. So could the latest reading on inflation, also out this week. Both reports highlight a light week of economic news.
At its March 20-21 meeting, the Fed lifted its benchmark short-term interest rate by a quarter percentage point, as expected, and policymakers’ median forecast continued to show a total of three rate hikes for 2018. Initially, that eased market fears that federal tax cuts and spending increases would juice economic growth and inflation, and spur the Fed to raise rates more rapidly. But a closer look at Fed officials’ projections revealed a murkier picture. Seven policymakers now predict four rate hikes, up from four predictions in December. Also, new Fed Chairman Jerome Powell downplayed the effects of President Trump’s market-rattling, get-tough trade policy. But the minutes, due out Wednesday, could point to “more robust discussions” about the potential impact of tariff threats by the U.S. and vows of retaliation by other countries, Nomura economist Lewis Alexander says.
The pace of inflation will probably be the key factor that determines how quickly the Fed bumps up rates. Annual inflation remains modest, and economists reckon that didn’t change in March. Gas prices probably fell, Alexander says. And recent, unusually sharp increases in apparel prices probably moderated while car price increases likely remained tepid, he says. As a result, economists figure overall inflation was unchanged while a core measure that strips out volatile food and energy costs edged up a slender 0.2%. But there’s a wrinkle. It was in March 2017 that some factors began to push down inflation. That means that starting this past March, those decreases will no longer keep a lid on annual inflation. Economists expect the Labor Department to report that consumer prices in March increased 2.3% from a year ago, up from 2.2% the prior month, while core prices jumped 2.1%, up from 1.8%.
On Friday, Labor takes a peak beneath February’s 326,000 net job gains. Its Job Openings and Labor Turnover survey spotlights openings, hires and quits across the country. Job openings hit a record 6.3 million in January, reflecting robust demand from employers. If they continued to hover around that level in February, that would be encouraging for future job growth.