Fed likely to stay put on rates as it awaits clarity on Trump’s economic policies
The U.S. Federal Reserve is expected to keep interest rates unchanged on Wednesday in its first policy decision since President Donald Trump took office, as the central bank awaits greater clarity on his economic policies.
Trump has promised a large infrastructure spending program, tax cuts, a rollback of regulations and a renegotiation of trade deals but has offered few details or a timeline for their roll out since his victory in the Nov. 8 election.
The central bank’s latest policy decision is scheduled to be released at 2 p.m. EST (1900 GMT) on Wednesday at the conclusion of a two-day meeting. Fed Chair Janet Yellen is not due to hold a press conference.
The policy decision will come a week after Yellen underscored that the U.S. economy is near full employment and warned of a “nasty surprise” on inflation if the Fed is too slow with its rate hikes.
Economists polled by Reuters have all but ruled out a rate increase at this week’s meeting. Investors next see an interest rate rise in June, according to Fed futures data compiled by the CME Group.
The Fed raised its benchmark interest rate at its last policy meeting in December, the second such move in a decade, to a target range between 0.50 percent and 0.75 percent. It forecast a further three rate increases this year.
WAIT-AND-SEE MODE
Despite encouraging U.S. economic data, Fed policymakers are currently hampered in assessing how quickly inflation might rise until they have more information on Trump’s economic plans.
“At the moment there’s incredible uncertainty surrounding fiscal policy and the potential for stimulus and the composition of that,” said Paul Ashworth, an economist at Capital Economics. “The Fed can’t react until it knows what to react to.”
With the U.S. economy already bumping up against full employment, Trump’s promises on fiscal stimulus and tax reform could quickly spur higher inflation as would imposing tariffs on Mexican imports.
