US Fed to hike again but hints at pause in 2019

(Washington) AFP: The US Federal Reserve is likely to raise interest rates in the coming week but policymakers have begun to signal they may take it a bit slower in 2019.

Waning growth, a trade war, tame inflation and an increasingly scary geopolitical scene mean the central bank could make clear they plan to slow or even pause the current tightening cycle - instead taking a wait-and-see approach until the economic picture becomes clearer.

Since October, Fed officials have watched Wall Street take a wild ride, alternately diving and rallying as public remarks from Chairman Jerome Powell and others veered between indicating gradual hikes would continue or pause.

In recent days, economists have begun to cut their forecasts for the number of rate hikes they expect next year to just one or two from as many as four.

Fed officials in September forecast three increases but that could be revised as well in the new projections to be released Wednesday.

At last month’s meeting, members of the Fed’s rate-setting Federal Open Market Committee argued they should signal they were close to the end of the cycle by deleting the words “further gradual increases” from post-meeting statements.

That would mark a significant shift in the Fed’s messaging of the last three years that maintained a steady drumbeat telling markets to expect “gradual adjustments” to rates.

But economists say the Fed is keenly aware of the specter of slowing growth in China and Europe, a chaotic British exit from the European Union, political turmoil in France and Italy’s budget woes.

In the United States, job growth has remained strong this year but inflation has settled at the Fed’s two percent target, despite fears the strong economy might ignite prices.

Add to this the fading boost from recent tax cuts and government spending, and expectations US growth will slow, and the future can seem highly uncertain.
“I share the notion that things are not quite as strong as they looked a few months ago but we don’t know anything very definitively,” former Fed vice chair Alice Rivlin told AFP.

“I think they’re saying, ‘We’ll be very careful and we’ll play it how we see it.’”

Changing expectations allows the Fed to pause without roiling financial markets with a surprise move.