Washington (AFP) – The US Federal Reserve began a two-day meeting on Tuesday, having signalled it is likely to raise the benchmark interest rate as the world’s largest economy gains steam.
Any increase in the key federal funds rate would come a bit earlier than had been expected at the start of the year, with central bankers prodded by continued strong job creation and accelerating inflation.
The Fed move would come just as President Donald Trump lays the groundwork for expansionary economic policies, having pledged to return the United States to four percent annual growth by cutting taxes and regulation and boosting spending on infrastructure. The policy details, however, have been scarce.
The Federal Open Market Committee, which sets the federal funds rate, last moved in December but stood pat last month, adopting a wait-and-see approach as the new administration entered office.
The FOMC is due to announce its next decision on Wednesday afternoon. The target interest rate now stands at a range of 0.5 to 0.75 percent. Even after a quarter-point increase, it would still be low by historical standards.
“I think the Fed will say it was entirely prudent to take one more step right now,” Jon Faust, a former advisor to the Federal Reserve Board, told AFP recently.
“If things clearly continue in the same direction, we’ll take more. But that will depend on us seeing what happens in the data.”
The unemployment rate fell below five percent in May and the US economy has been adding jobs at an average of more than 200,000 net new positions over the last three months.
January also saw the Fed’s favored inflation measure hit its fastest 12-month pace in four years. The Fed will get one more piece of inflation data Wednesday, with the release of the latest consumer price index for February.
The question for Fed watchers now will be how many times it may act during the rest of 2017, with the next meeting set to occur in June. The Fed previously forecast a total of three rate increases this year, but that figure could change.
Randall Kroszner, a former Federal Reserve Board governor, told AFP that with the economy beginning to hum, Fed Chair Janet Yellen was “certainly open” to the possibility of raising rates more quickly.
“They do want things to be gradual but they may need to move at a slightly faster pace,” Kroszner said.