Fed officials to keep monetary policy on hold until they see the effects of the shutdown
(Reuters) – Federal Reserve officials are unlikely to make any shift to monetary policy this week as they wait for more evidence of how badly Washington’s budget battle has hurt the U.S. economy.
Indeed, they could stand pat for the rest of the year.
“I would say January or March at this point,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida, on when the Fed would begin to scale back its bond-buying stimulus. “Odds for December are less than 50/50.”
Economic data released since a partial government shutdown ended has been surprisingly weak. Job growth slowed in September, a period that preceded the government’s 16-daypartial shutdown, and business investment plans flagged.
Consumer and business confidence could suffer lasting harm after politicians flirted with a debt default by refusing to raise the U.S. borrowing limit until the last moment, in a deal that only postpones the fiscal fight until the new year.
Making matters worse, the shutdown interrupted data gathering in October, muddying the picture for Fed policymakers seeking signs on the economy’s strength.
On top of the economic uncertainty, officials may be hesitant to make any dramatic policy shift given the upcoming leadership change at the central bank. President Barack Obama nominated Janet Yellen, the Fed’s current vice chair, earlier this month to replace Ben Bernanke as Fed chairman when his term ends in January.
The pending change at the Fed’s top dims prospects for any shift in the time-being in its so-called forward guidance on interest rates.
“It is hard to see any compelling reason to change either policy or even to make major changes to the statement,” said Dean Maki, chief U.S. economist at Barclays in New York.
The central bank’s policy-setting committee is to release a statement on its policy decision on Wednesday, at the end of its two-day meeting, at 2 p.m. (1800 GMT).