The Fed has a lot to discuss in addition to higher interest rates

Presidential influence. A trade war with China. Rising interest rates. Protection against the recession of American banks.

These are just some of the topics that Federal Reserve Chairman Jerome Powell is expected to face at a press conference on Wednesday after the Federal Open Market Committee wrapped up its two-day meeting on the definition of policies.

Washington decision makers this week are expected to raise benchmark interest by a quarter of a percentage point for the third time this year, in the range of 2% to 2.25%.

the rising rates are widely expected by investors. What is unknown is how the Fed faces risks to economic growth, including the burgeoning trade war and rising oil prices, or President Donald Trump's desire to maintain low rate.

What's more, in recent weeks, Fed officials have appeared publicly divided over how quickly the Fed will act next year and beyond.

The central bank has announced a fourth rate hike this year and then three more in 2019 and one in 2020. Analysts will monitor any possible changes as policymakers update their forecasts on Wednesday.

Defend the independence of the Fed

All eyes will be on Powell, who will have an opportunity publicly respond to Trump's criticisms of the Fed's policies.

During the summer, the president made the rare decision to repeatedly continue his presidency of the Fed undermine the competitive advantage of America against China by raising interest rates.

Since Trump came to power, the Fed has raised rates five times, including twice this year under Powell. The Fed is gradually increasing rates as the economy grows stronger.

"I'm not thrilled with the increase in interest rates, no, I'm not thrilled," said Trump, who named Powell head of the central bank, when he said, "I'm not happy about the increase in interest rates. an interview with Reuters in August. "I should get some help from the Fed."

Presidents have historically avoided commenting on Fed policies. The central bank is designed to be independent of political interference.

The Fed did not comment on the president's criticism. But Powell expressed his deep attachment to the central bank's independence in an interview with American Public Media's "Marketplace" American radio program in July.

Combat trade tensions

Fed officials are already worried about the impact of the trade war on the US economy. But as tensions rise, how does the Fed calculate and plan for these risks and uncertainties? This is the question that investors want to answer.

According to the minutes of their July meeting, policymakers said a "major escalation" of trade disputes could accelerate inflation and encourage businesses to withdraw from investment. Such disorders, the participants noted, could reduce household spending and disrupt business supply chains.

Until now, Powell has been publicly cautious about the impact of trade tensions on wages and capital expenditures.

"We do not see it in the numbers yet, but we have heard a resurgence of concern" about capital spending cuts by businesses, Powell told legislators in July. He also said that it was difficult to predict the economic impact.

Since Mr. Powell said that, the Trump administration has followed up on its threats to impose a 10% tariff on $ 200 billion worth of Chinese products, in addition to other tariffs imposed on China early in the 1990s. 'year. The most recent level is expected to increase next year to 25% if the commercial stalemate is not resolved.

Efforts to restart negotiations between the world's two largest economies have also declined, adding to the uncertainty how long will the commercial struggle continue?

More rate increases in 2019?

It depends on who you ask. Policy makers are divided as to whether the Fed will have to raise rates next year faster than expected.

Some officials, such as Fed Governor Lael Brainard, have argued that recent tax cuts and increased government spending would strengthen require higher interest rates over the next two years.

Others say that as inflation approaches the 2% target set by the Fed, the level that it considers healthy for the economy, the Fed should take a slower approach.

"We believe that there is a good chance that dotplots will evolve and show that the Fed is more inclined to raise interest rates than expected," commented Brian Gardner, an analyst at the bank. Investment Keefe, Bruyette & Woods. Fed forecast tool.

In August, Powell defended the Fed's strategy of increasing rates gradually at a conference in Wyoming. He added that it keeps the economy on an equal footing as long as inflation is stable and unemployment continues to fall.

Nevertheless, investors will look at the updated economic projections to see if this idea is changing.

New decision makers, new forecasts

Fed's updated economic forecasts will have a new twist.

Fed Vice President Richard Clarida will join the FOMC meeting for the first time. And former Fed Chairman William Dudley retired. The prospects of the central bank could evolve with a new range.

This week's forecast, which will update the economic projections for 2018 to 2020, will also include 2021 for the first time. Wall Street particularly monitors indexes on long-term rates.

Prevent a financial bubble

For the first time, Fed officials are also assessing whether to trigger a mechanism this would force banks to hold even more capital as a buffer against a financial calamity.

The regulatory tool, created under the Dodd-Frank Act of 2010, requires banks to fuel their balance sheets with additional capital during times of economic prosperity to help mitigate fallout during times of stress.

It has never been used before and the banks do not want it to take effect. But Fed officials are wondering whether to move forward to reduce the likelihood of a new financial crisis.

Powell did not weigh, but the subject could be hard to avoid on Wednesday. Policy makers discussed the benefits at the last meeting of the Fed, the minutes.

CNNMoney (Washington) First published on September 25, 2018: 11:36 ET