Fed Meet Begins With Rate Hike Expected

WASHINGTON, (UrduPoint / Pakistan Point News, app - 13th Dec, 2016 ) : The US Federal Reserve on Tuesday began a two-day meeting on monetary policy, with markets and observers expecting an interest rate hike, only the second in a decade.

Since the summer, increasingly rosy economy data on the health of the world's largest economy has helped sway reluctant policymakers towards raising rates -- overcoming worries that an increase could interrupt a fledgling recovery amid directionless inflation and slack labor markets.

Plans for the "normalization" of interest rates in 2016 above their historically low levels fell off track early this year. Poor US growth and hiring combined with fears of economic turbulence in China and Britain's shock vote to secede from the European Union in June to help dissuade the Fed from raising rates.

But Jim Glassman, managing director and chief economist for commercial banking at JP Morgan Chase, believes the Fed missed an opportunity by not raising rates during so much of 2016. "I think the history books will probably argue that they should have done that because a lot of things that got in their way this year turned out to be head fakes," he told AFP.

Besides the rate hike, analysts will be looking for signals from the Fed on monetary policy in the coming year as the administration of President-elect Donald Trump settles into office. Analysts tell AFP that Fed members are likely to adopt a wait-and-see approach in deciding on the course of monetary policy for 2017.

However, stocks have rallied since last month's presidential elections on expectations of cuts to taxes and regulations, infrastructure spending. As of September, the median projection among Fed members was for two rate increases in 2017.

But such policies could call for a faster course of rate increases than the two rate increases in 2017 projected by Fed members in September. "I think the Fed will be more inclined to look at the reality of how things change," said Glassman.

"It's going to take some time to see what actually gets put in place." Official figures released Tuesday from the Labor Department showed both import and export prices declining for the month of November, with imports falling 0.3 percent over October on falling fuel prices.

Joel Naroff of Naroff Economic Advisors said the data shows the strength of US Currency, which could counteract inflation and complicate plans for US monetary policy. In November, the dollar hit a 13-year high against a basket of major currencies but was holding steady in advance of the start of this week's meeting by the Fed.

"The strong dollar is keeping inflation down, which is a challenge for the Fed," Naroff said in a note to clients. "How long the dollar's rally will continue is unclear."