US Fed likely to leave rates steady despite market outlook

WASHINGTON: The US Federal Reserve concludes its latest two-day policy meeting on Wednesday expected to leave interest rates on hold but flag whether it plans to cut rates later this year as investors expect and the US president has demanded.
The central bank may nod to recent weaker-than-expected jobs numbers and softer inflation, and drop from its policy statement a pledge to be “patient” before changing rates — opening the door to a possible rate reduction later.
But the level of concern raised around fresh economic risks, and the language Chairman Jerome Powell uses in his post-meeting press conference, will be read by investors and perhaps even more significantly by President Donald Trump as a sign of whether officials are poised to act soon or are still biding their time.
The policy statement and new economic projections are to be released at 2 pm (1800 GMT), followed by a Powell press conference at 2:30 pm (18:30 GMT).
“If they don’t (reduce the interest rate) in June, the words he uses are going to have to be pretty careful that they are open to July,” said Mark Stoeckle, CEO of Adams Funds, which caters mostly to individual investors.
Fed policymakers “don’t want to make it sound like (they) are beholden to the market or to the president,” he said, but even a token single rate cut in July “buys you some time to get more data … It saves face for everybody.”
As Fed officials gathered in Washington on Tuesday, news reports surfaced describing efforts by Trump earlier in the year to determine if he could remove Powell as chairman of the central bank.
Powell, as head of an independent agency, is thought to be insulated from such a move by law. Still it was a reminder to policymakers that as Trump gears up his 2020 reelection effort he remains convinced the Fed is hampering an economy whose performance may prove central to his chances at a second term.
Fighting a trade war on several fronts and with some expectation growth may slow this year, he has singled out central banks globally for his ire. He has noted that China’s monetary policy was shaped by politicians in a way he felt left him at a disadvantage in trade negotiations.
On Tuesday he slammed European Central Bank President Mario Draghi for raising the possibility of fresh stimulus to bolster weak European growth, which Trump saw through the lens of a weaker euro, a stronger dollar, and higher prices for US exports. — Reuters