Fed meets to weigh future rate hikes

WASHINGTON, D.C. (CNN) – Federal Reserve decision-makers will meet Wednesday in Washington to discuss the opportunity to slow down plans for accelerated rate hikes.

But do not expect big surprises.

"Almost all Fed officials seem to agree with the gradual increases to the" neutral rate, "" said Jan Hatzius, chief US economist at Goldman Sachs, saying interest rates do not neither interest rates nor speed were considered stagnant. in a recent note to customers.

Fed policymakers will meet in Washington on Wednesday and Thursday. The two-day policy meeting takes place one day after the Americans vote in the mid-term elections. The Democrats have regained control of the House – a widely anticipated development that would likely guarantee two years of deadlock in Washington and a string of recent investigations on the Trump administration.

New economic data since the last meeting of central bankers have increased the Fed's chances of sticking to its plans to raise rates in December and continue its momentum of raising interest rates. gradually in 2019.

Employers created 250,000 jobs in October, far exceeding expectations. Wages also rose 3.1% after years of stagnant US worker wages.

But not everything is rosy. US policymakers also face a strong dollar due to rising interest rates and recent market volatility, as other central banks take steps to end stimulus packages put in place by investors. countries in crisis.

Business investment rose only slightly in the third quarter due to continued trade rebalances, despite significant corporate tax cuts imposed by the Trump government last year.

"We think the Fed will always qualify the economy as" strong ", despite the moderation of fixed investment spending by companies," wrote Michael Gapen, chief economist at Barclays, in a note to customers.

In recent weeks, Trump has threatened that markets would fall if the Democrats took the House. He also criticized his Fed chief, a former investment banker he had named last year, as a "threat" to Republican control of Congress over a series of interest rate hikes.

Although the Fed is generally expecting to keep rates unchanged at this month's meeting, policymakers have already started telegraphing that they are willing to raise rates further to avoid overheating the economy. .

The newly appointed Fed Vice President, Richard Clarida, warned investors that they could expect an "upcoming" rate hike at the end of last month if growth in the US dollar was expected. economy continued to grow steadily.

"If strong growth and strong job gains are to continue in 2019 and accompany a significant increase in actual and anticipated inflation, this situation would indicate that Further standardization of policies may well be needed, beyond my current expectations, "said Clarida. to prepare remarks in a speech of 25 October.

Even Powell has warned that central bankers might have to "go a little faster" – they see the economy becoming "stronger and stronger" and that "inflation rises".

Higher wages and a stronger labor market are good news for workers, but it makes the Fed's work much more difficult. Central banks have taken cautious steps in recent years to prevent the economy from overheating by slowly raising interest rates in the near term.

Fed officials fear that such a low unemployment rate and such high wages could accelerate inflation, forcing the central bank to raise rates more aggressively and tilt the economy. in the recession.

At the meeting last month, policymakers debated the question of what restrictive policy should be adopted in the future, with some "participants" saying that further rate increases may be needed "for a while. "while others would need to see obvious signs of overheating the economy before taking further action.

For now, the Fed has sent strong signals indicating its intention to stay the course. They should leave their benchmark interest rates, which control the cost of credit cards, mortgages and other loans, unchanged at a range of 2% and 2.25% at this week's policy meeting .

The Fed is generally expected to raise rates in December, with the majority of participants now favoring such an initiative. They also indicated that they were planning at least three more rate increases in 2019.

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