Fed: rate rise almost certain, in search of signals for the next

Jerome Powell, the president of the american central Bank (Fed) on march 1, 2018 Washington, d.c. (Photo SAUL LOEB. AFP)

The monetary Committee of the american central bank (Fed), which met for the first time under the leadership of its new president, Jerome Powell, is expected to raise interest rates Wednesday to prevent overheating of an economy driven by the measures of the administration Trump.

“We would be very surprised if the Committee (FOMC) failed to conclude its meeting by a rate increase,” a quarter of a percentage point, wrote, summarizing the general opinion of the markets, Ian Shepherdson, chief economist of Pantheon Macroeconomics.

Jerome Powell, who succeeded Janet Yellen party in February, said in front of Congress recently: there will be “other increases rates to gradual and” saw “strong economic growth” driven by “fiscal policy has become more challenging”.

The interest rate on a day-to-day should as well establish in the new range of 1.50% to 1.75%. This will be the fifth turn of the screw monetary since December of 2016, after the election of Donald Trump.

But beyond the increase expected, which will be announced in a press release at 18: 00 GMT, economists will watch closely the new economic forecasts of the Fed, either in terms of growth, inflation or monetary policy.

The last date of December, and the Fed members had built into their projections for growth (2.5% in 2018 and 2.1% in 2019) the tax cuts promoted by Donald Trump.

But since then, the administration has added to the pot $ 300 billion in military spending over two years, which should further stimulate the economy.

The FOMC could also raise its inflation forecast, while the unemployment rate is already very low (4.1% and to 3.9% for this year, according to the Fed) is forcing companies to increase salaries to attract and keep employees.

Finally, and most importantly, the Fed will have to reconsider how many rate hikes are likely this year. So far, the members of the Committee have provided for three increases of a quarter point this year, many economists believe that the Fed is about to schedule four bearings.

– Cautious comments –

Jerome Powell, a former governor of the central bank chosen by Donald Trump, will hold its first press conference. But, in the light of his testimony before the Congress, we can expect that he avoids being too explicit about the path of monetary and approach too close to sensitive issues, such as fiscal policy or tariffs.

“After all, he is a lawyer and he knows how to respond to a sensitive issue by avoiding the answer”, says Ian Shepherdson.

On the import taxes that the administration Trump wants to impose on the steel in particular, Mr. Powell has just dropped in front of Congress that they were “not the right approach”.

There is no doubt that he will be asked about the impact on the world’s largest economy, taxes, protectionist, heavily criticized by all trading partners of the United States. His counterpart at the european central Bank Mario Draghi has in particular denounced these unilateral actions that the u.s. as a risk to growth.

But, as noted by Tim Duy, professor of economics at the university of Oregon, specialist of the us central bank, “the Fed should be hesitant to point the finger at” these taxes, protectionist, at least in its press release.

“I doubt that the members of the monetary Committee want to necessarily be seen as opposing the government because they would prefer that the administration should not put its nose” in the conduct of monetary policy, he noted.

Other reasons call for caution. If the beige Book, the latest report of conditions of the Fed, has spotted more and more salary increases in the business –in part financed by the tax cuts for businesses– these signs are not yet tangible in inflation, which remains at 1.7% index (PCE).

In addition, the economic data have been suddenly mixed in the 1st quarter, with weaknesses on the sales side of retail, cars, and the real estate market.

The Atlanta Fed, who prepare regularly an index of growth forecast, has revised down its projection for the 1st quarter to 1.8% annual rate instead of 3% a few weeks ago, which is the goal of the administration to Trump. This brake, however, should leave the place at a pace stronger in the 2nd quarter.

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