(Bloomberg) -- The Federal Reserve is widely expected to leave interest rates unchanged when it concludes its two-day meeting on Wednesday, though it may well signal an increase is likely when officials meet next in December.
The rate-setting Federal Open Market Committee will issue a statement at 2 p.m. in Washington to explain its decision. There is no scheduled press conference with Fed Chair Janet Yellen afterward, and there will be no update to policy makers' economic projections. Here's what to watch for:
In a repeat of the way it prepared the public for a rate hike last December, the FOMC may decide to amend its statement to signal that is assessing whether it will “be appropriate to raise the target range at its next meeting.” The current language lists a number of factors officials are assessing “in determining the timing and size of future adjustments” without any reference to a specific time frame.
“I'd expect a little strengthening of the signal about a rate hike in December,” said Jonathan Wright, an economics professor at Johns Hopkins University in Baltimore. “They might explicitly refer to the decision about raising the target at the next meeting, as they did in the October 2015 statement.”
None of the 90 economists surveyed by Bloomberg expect a rate increase this week. Investors also see little chance of a move, according to the prices of federal funds futures contracts, though they view the probability of a rate hike before year end as roughly two in three.
Because expectations for a December move are high, Fed officials could decide that they don't need to alter the statement much at all, or insert an explicit reference to the timing of the next rate hike. That would also preserve their flexibility ahead of the U.S. presidential election on Nov. 8, whose proximity was one of the main factors analysts believed would keep the Fed on hold this week.
The election “can't be ignored as a source of uncertainty,” Roberto Perli, a partner at Cornerstone Macro LLC in Washington, wrote in a note to clients. “It would be quite remarkable if the same committee that decided not to raise rates in June because of the uncertainty created by a referendum in the U.K. went ahead and hiked now with an important election at home,” he said, referring to Britain's vote to leave the European Union.
U.S. central bankers have held the target range for their benchmark fed funds rate at 0.25 to 0.5 percent all year after raising it in December for the first time in nearly a decade. Concerns over slowing global economic growth and a slide in U.S. inflation expectations have kept them sidelined. Officials last December forecast it would be appropriate to raise rates four times in 2016, their median estimate showed. That projection was cut in March to two moves this year and lowered again in September to just one.
U.S. growth rebounded in the third quarter after an underwhelming performance in the first six months of the year. The Fed's preferred gauge of inflation, excluding volatile food and energy components, advanced 1.7 percent in the 12 months through September. The Fed targets 2 percent inflation.
As a result, the statement's description of current U.S. economic trends will be “certainly as upbeat as the last one,” said Jim O'Sullivan, chief U.S. economist at High Frequency Economics Ltd in Valhalla, New York. “What they say about growth and inflation and risks doesn't have to change much.”
Another thing that probably won't change much from the FOMC's most recent statement, issued in mid-September: the number of committee members dissenting from the decision.
At that meeting, Cleveland Fed President Loretta Mester, Boston Fed President Eric Rosengren and Kansas City Fed President Esther George dissented against the decision to leave rates unchanged, as all three favored an increase. That was the most in nearly two years.
“So you will have those same three in November,” said Carl Tannenbaum, chief economist at Northern Trust Corp. in Chicago. Still, “you cannot get a rate tightening unless Janet is on board, and she is not all the way there,” he said.
To contact the reporters on this story: Matthew Boesler in New York at mboesler1@bloomberg.net, Steve Matthews in Atlanta at smatthews@bloomberg.net. To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
