Tag Archives: Interest Rates

Fed policymakers promise response if U.S. economy slows

FILE PHOTO: Federal Reserve Chairman Jerome Powell poses for photos with Fed Governor Lael Brainard (L) at the Federal Reserve Bank of Chicago, in Chicago, Illinois, U.S., June 4, 2019. REUTERS/Ann Saphir

By Howard Schneider and Ann Saphir

CHICAGO (Reuters) – Signs that the economy is losing momentum hung over a Federal Reserve summit for a second straight day as policymakers hinted they would be ready to cut interest rates if the U.S. trade war threatens a decade-long expansion.

Investors added to bets that the Fed would have to lower borrowing costs multiple times by year-end on Wednesday after a report by a payrolls processor showed private employers added 27,000 jobs in May, well below economists’ expectations and the smallest monthly gain in more than nine years.

The U.S. economy will mark 10 years of expansion in July, the longest on record. Strong job gains have been a key feature. But rising trade tensions between the United States and China have led to tit-for-tat tariffs, put a chill on U.S. businesses’ spending and exacerbated a manufacturing slowdown.

Current and threatened U.S.-China tariffs could slash global economic output by 0.5% in 2020, the International Monetary Fund warned on Wednesday as world finance leaders prepare to meet in Japan this weekend.

“We’ll be prepared to adjust policy to sustain the expansion,” Fed Governor Lael Brainard said in an interview with Yahoo Finance on the sidelines of the Fed’s Chicago summit. “The U.S. economy, generally, is in the midst of a very lengthy expansion, the U.S. consumer remains confident, but trade policy is definitely a downside risk.”

Brainard’s remarks follow a pledge on Tuesday by Fed Chairman Jerome Powell to react “as appropriate” to trade-war fallout. Other Fed officials struck a similarly cautious tone.

Since the Fed’s last rate-setting meeting, Trump slapped new 25% tariffs on $200 billion of Chinese imports and threatened new import taxes on Mexican goods unless immigration slows. Until recently officials had been largely signaling that they would keep rates at their 2.25-2.50% target range.

The trade war added urgency to what was intended to be a strategy session at the Chicago Fed focused on how the central bank can shore up its policies. Officials worry that economies risk getting stuck in a self-fulfilling cycle of low rates and low inflation that will make it harder to rebound from recessions and require increasingly forceful intervention.

To combat those risks, Fed officials are considering whether they want to temporarily welcome inflation a bit above their 2%-a-year target – and keep rates lower for longer – in the hopes that such a strategy will make attaining the central bank’s goals for maximum employment and price stability more likely.

Policymakers are also revisiting exactly what maximum employment means and whether they are doing a good enough job in how they speak to the public. No changes are expected until next year.

(Reporting by Howard Schneider and Ann Saphir; Writing and additional reporting by Trevor Hunnicutt; Editing by Andrea Ricci)

U.S. job openings hit 11-month low; quits rate stagnates

FILE PHOTO: A "Help Wanted" sign sits in the window of a shop in Harvard Square in Cambridge, Massachusetts, U.S., February 11, 2019. REUTERS/Brian Snyder/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job openings dropped to an 11-month low in February and hiring decreased, which could partially explain a sharp slowdown in job growth during that month.

Still, the labor market remains a pillar of support for the economy amid signs that activity was easing because of the fading boost from a $1.5 trillion tax cut package and the effects of interest rate increases over the last few years. The economy is also facing headwinds from slowing global growth and the United States’ trade war with China.

“The February job openings data reinforced that the labor market weakened in February but there isn’t any cause for concern,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Job openings, a measure of labor demand, tumbled by 538,000 to a seasonally adjusted 7.1 million, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS, report on Tuesday. The drop was the biggest since August 2015. The level was the lowest since March 2018.

Vacancies in the accommodation and food services industry fell by 103,000 jobs in February. There were 72,000 fewer job openings in the real estate and rental and leasing sector. Job openings in the transportation, warehousing and utility sector dropped by 66,000.

Nonfarm payrolls increased by only 33,000 jobs in February, the fewest since September 2017. The near-stall in job gains was partially blamed on colder weather and also viewed as payback after robust increases in December and January.

Job growth picked up in March, with the economy creating 196,000 positions, the government reported last Friday.

WORKERS STILL SCARCE

The drop in job openings in February likely does not change the theme of labor shortages in the economy. A survey of small businesses published on Tuesday found that just over a fifth of owners reported difficulties finding qualified workers as their “single most important business problem” in March.

According to the survey from the NFIB, 39 percent of small business owners reported job openings they could not fill in March. Thirty-three percent said they had openings for skilled workers and 14 percent have vacancies for unskilled labor.

Economists expect monthly job growth to average roughly 150,000 this year, stepping down from 223,000 in 2018.

“There are still millions of help wanted signs out there in the country so we hesitate to revise our outlook for the labor market overall,” said Chris Rupkey, chief economist at MUFG in New York.

The dive in job openings in February pushed down the vacancies rate to 4.5 percent from 4.8 percent in January. Hiring fell to 5.7 million in February from 5.8 million in the prior month. The decrease in hiring was led by the construction sector, where hiring fell by 73,000.

Hiring in the nondurable goods manufacturing industry dropped by 33,000 in February. Hiring by state and local government education departments fell 22,000.

The number of workers voluntarily quitting their jobs was little changed at 3.5 million in February, keeping the quits rate at 2.3 percent for a ninth straight month.

The quits rate is viewed by policymakers and economists as a measure of job market confidence. The worker reluctance to switch jobs is despite the tight labor market conditions that are steadily driving up wages.

“This is not as many quits as you would expect in such a tight labor market, when workers are in higher demand,” said Nick Bunker, an economist at Indeed Hiring Lab. “Though perhaps this isn’t surprising in the short term given that the ratio of unemployed workers to job openings has been rising.”

Layoffs increased in February, lifting the layoffs rate to 1.2 percent from 1.1 percent in January. There were increases in layoffs in the professional and businesses services, and healthcare and social assistance sectors in February.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)

U.S. existing home sales surge, boosted by Fed’s signal on rates

FILE PHOTO: An existing home for sale is seen in Silver Spring, Maryland February 21, 2014. REUTERS/Gary Cameron

By Jason Lange

WASHINGTON (Reuters) – U.S. home sales surged in February to their highest level in 11 months, a sign that a pause in interest rate hikes by the Federal Reserve was starting to boost the U.S. economy.

The National Association of Realtors said on Friday existing home sales jumped 11.8 percent to a seasonally adjusted annual rate of 5.51 million units last month.

That was the highest since March 2018 and well above analysts’ expectations of a rate of 5.1 million units. The one-month percentage change was the largest since December 2015. January’s sales pace was revised slightly lower.

February’s surge came as mortgage rates fell following signals from the Federal Reserve that it was no longer eyeing rate hikes. Several years of rising rates had put a brake on parts of the U.S. housing market in 2018.

“(It’s) quite a powerful recovery that’s taking place,” said Lawrence Yun, chief economist with the National Association of Realtors.

Still, the number of sales in February was 1.8 percent lower than a year ago.

The U.S. housing market has also been held back by land and labor shortages, which have led to tight inventory and more expensive homes.

The PHLX Housing Index extended losses following the release of the figures although its decline was less steep than the broader stock market.

The median existing house price increased 3.6 percent from a year ago to $249,500 in February.

Existing home sales rose in three of the country’s four major regions and were unchanged in the Northeast.

There were 1.63 million previously owned homes on the market in February, up from 1.59 million in January.

At February’s sales pace, it would take 3.5 months to exhaust the current inventory, down from 3.9 months in January. A supply of six to seven months is viewed as a healthy balance between supply and demand.

(Reporting by Jason Lange; Editing by Andrea Ricci)

The Federal Reserve is prodding Americans to buy more on credit

FILE PHOTO: A sign advertises homes for sale in a new housing development in Dickinson, North Dakota January 21, 2016. REUTERS/Andrew Cullen

By Jason Lange

WASHINGTON (Reuters) – The Federal Reserve’s decisive statement this week that interest rates are unlikely to rise this year sends a signal to U.S. households: keep buying stuff.

The Fed tries to guide the U.S. economy by controlling the interest rate banks charge one another for overnight loans. Moving this rate up lifts other rates in the economy, making it costlier for people to use their credit cards or to buy homes and cars. Higher rates also make companies rethink investments.

A solid majority of Fed policymakers on Wednesday said higher rates are unlikely this year, leading investors to bet the economy might slowing enough for the Fed to actually cut rates.

The following are some possible consequences for American households:

EASY CREDIT

The Fed’s signal on its interest rate outlook led key market rates to fall, including the yield on 10-year Treasury bonds. That is a sign that rates are also falling for loans used to buy houses and cars. Interest rates for credit cards may also drift lower. Mortgage rates have been falling since November when Fed policymakers made clear they would be patient about rate decisions.

SAVING DISCOURAGED

Lower rates also encourage spending by taking the shine off some common ways to save money. Low yields reduce the return on money in savings accounts as well as in funds made up of safe-haven government bonds. This poses a problem for retirees who depend more on their income from savings and who take a hit from lower rates on Treasury bonds. The Fed has argued that retirees benefit from actions taken to support the broader economy.

RETIREMENT BOOST

Rising stock prices comprise the flip side of lower bond yields. That boosts the value of private retirement accounts, such as 401(k)s, particularly those of young people whose accounts tend to be weighted toward stocks.

The benchmark S&P 500 stock index surged after the Fed’s decision, reflecting the view that cheaper borrowing costs would help company profits. It is possible that stock market gains could boost consumer spending because people sometimes loosen their purse strings after a rise in perceived wealth.

BUOYANT LABOR MARKET

The U.S. jobless rate is near its lowest level in 50 years although lately there have been signs of softening in the labor market. Hiring slowed sharply in February and the number of new jobless claims every week has also been ticking higher. The Fed’s action aims to keep the labor market solid. That could help encourage more people to rekindle job searches they had given up when the economy was still weak following the 2007-09 financial crisis.

 

(Reporting by Jason Lange, editing by G Crosse)

U.S. inflation forecasts decline, supporting rate-hike holiday

A customer shops for Thanksgiving ham at a grocery store in Los Angeles, California U.S. November 21, 2017. REUTERS/Lucy Nicholson

NEW YORK (Reuters) – U.S. consumers expect prices to rise more slowly, according to the Federal Reserve Bank of New York, a decline in inflation expectations in February that likely reinforces policymakers’ reluctance to hike rates.

The survey of consumer expectations, published on Monday, is one of the Fed’s price gauges as it weighs the need for rate rises. It showed one- and three-year ahead inflation expectations were down 0.2 percentage points to 2.8 percent last month, with sharp declines in expected medical care expenses. Both the one- and three-year gauges had been roughly unchanged since April 2018.

Stable and low inflation is one of the main reasons that the U.S. central bank, having raised interest rates four times last year, is now taking a wait-and-see approach to any more tightening in 2019.

The Fed is also conducting a broad policy review that may result in the central bank welcoming inflation that is slightly and temporarily over its target. Some policymakers and analysts think the Fed now has far more ability to respond to upward spikes in prices rather than persistently low readings. That is because interest rate cuts lose their potency as those borrowing costs approach zero.

Fed officials last raised their target policy rate in December to 2.25 to 2.50 percent but signaled after that point that they would be “patient” before deciding future moves.

The New York Fed’s survey found that consumers expected tame inflation despite also forecasting their own wages would rise. Average one-year earnings growth expectations increased to 2.5 percent last month, from 2.4 percent the month before. Consumers also forecast a lower likelihood that unemployment will rise. Economists are debating whether rising wages and low unemployment figures still translate into higher inflation as orthodox economic theory assumes.

Consumers were also slightly more optimistic about the direction of U.S. stock prices and their ability to access credit to finance purchases.

The Internet-based survey taps a rotating panel of 1,300 households.

(Reporting by Trevor Hunnicutt; Editing by Chizu Nomiyama)

Fed leaves rates unchanged, says will be ‘patient’ on future hikes

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo

By Howard Schneider and Jason Lange

WASHINGTON (Reuters) – The Federal Reserve held interest rates steady on Wednesday but said it would be patient in lifting borrowing costs further this year as it pointed to rising uncertainty about the U.S. economic outlook.

While the Fed said continued U.S. economic and job growth were still “the most likely outcomes,” it removed language from its December policy statement that risks to the outlook were “roughly balanced” and struck language that projected “some further” rate hikes would be appropriate in 2019.

In a separate release from its policy statement, the U.S. central bank also said while it was continuing its monthly balance sheet reduction, it was prepared to alter the pace “in light of economic and financial developments” in the future.

The Fed said in that same document that it had decided to continue managing policy with a system of “ample” reserves, a signal that its balance sheet rundown may end sooner than expected.

Taken together, the two documents were meant to convey maximum flexibility from a central bank buffeted in recent weeks by financial market volatility and signs of a global economic slowdown.

U.S. stock markets extended their gains following the Fed’s statement, and bond yields dropped as investors gauged the language adjustment as signaling a low probability of additional rate hikes any time soon. The dollar weakened against a basket of major trading partners’ currencies.

“In light of global economic and financial developments and muted inflation pressures, the committee will be patient” in determining future rate hikes, the Fed’s rate-setting committee said in its policy statement after a two-day meeting.

The Fed made no change to the $50 billion monthly runoff of Treasury bonds and mortgage-backed securities from its balance sheet. Some traders have urged it to slow or halt its pullback from the bond markets, at least for now.

“Overall this signals the Fed will not be on autopilot going forward,” said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New York.

Fed Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m. (1930 GMT).

The Fed raised rates four times last year and signaled in December that it would do so twice this year.

The economic outlook, however, has become more clouded as a result of recent volatility in financial markets and signs that growth is slowing overseas, including in China and the euro zone. There are also fears the 35-day partial shutdown of the U.S. government may crimp consumer spending.

The Fed on Wednesday left its overnight benchmark lending rate in a target range of 2.25 percent to 2.50 percent.

The slight downgrade in the Fed’s language around rate increases included a change in its description of economic growth from “strong” to “solid,” and it noted that market-based measures of inflation compensation have “moved lower in recent months.”

The Fed’s policy decision was unanimous.

(Reporting by Howard Schneider and Jason Lange; Editing by Paul Simao)

Fed policymakers call for caution on further U.S. rate hikes

FILE PHOTO: A police officer keeps watch in front of the U.S. Federal Reserve building in Washington, DC, U.S. on October 12, 2016. REUTERS/Kevin Lamarque/File Photo

By Jonathan Spicer and Howard Schneider

RIVERWOODS, Ill./CHATTANOOGA, Tenn. (Reuters) – Another clutch of U.S. Federal Reserve policymakers said on Wednesday they would be cautious about raising interest rates without getting better a handle on how growing risks to an otherwise solid U.S. economic outlook could play out.

After months of tumult in the stock market, presidents of four of the 12 Fed regional banks said they wanted greater clarity on the state of the economy before extending the central bank’s rate hike campaign any further.

Three of the four, Charles Evans of Chicago, Eric Rosengren of Boston, and James Bullard of St. Louis, are voting members this year on the Federal Open Market Committee, the bank’s policy-setting panel.

Bullard has long been critical of the Fed’s rate increases, begun in December 2015, but the caution from Evans and Rosengren is new, even if they both believe growth will remain solid and rates will probably need to rise more.

The fourth president, Raphael Bostic of Atlanta, said there was no urgency to raise rates further at this juncture.

The remarks from the four come less than a week after Fed Chairman Jerome Powell eased market concerns that policy makers were ignoring signs of an economic slowdown. Powell said he was aware of the risks and would be patient and flexible in policy decisions this year.

Rosengren on Wednesday used those same two adjectives, while Evans said he would be “cautious.”

The new tone comes after the U.S. stock market dropped precipitously in the fourth quarter of 2018, suffering its worst December performance since the Great Depression. Other signs of tightening financial conditions surfaced as well, including a sharp slowdown in issuance of corporate bonds.

Short-term U.S. interest-rate futures are now pricing in less than a 2 percent chance of a rate hike this year, and traders see a one-in-four chance of a rate cut by next January.

That stands in stark contrast to forecasts from the Fed released after the central bank’s fourth 2018 rate hike in December. Those forecasts called for two more rate hikes this year.

Evans has been among the most vocal backers of gradually tightening U.S. monetary policy, and after a speech in Riverwoods, Illinois, on Wednesday told reporters he still believes the Fed will need to deliver three more rate hikes this year.

But, in his first public comments since November, he nodded to an array of “tough-to-read” factors highlighted by the recent market selloff, but penciled in a forecast for reasonably good U.S. growth and employment in 2019 and beyond.

Rosengren similarly said he expects solid growth this year and said he suspects financial markets are “unduly pessimistic.” But in a break from speeches last year, when he emphasized the risks of allowing unemployment to stay below sustainable levels for too long, Rosengren on Wednesday emphasized risks that could impinge on growth, and said he was taking on board the cautionary signals from falling stock markets.

“There should be no particular bias toward raising or lowering rates until the data more clearly indicate the path for domestic and international economic growth,” Rosengren told the Boston Economic Club. “I believe we can wait for greater clarity before adjusting policy.”

Bullard, meanwhile, told the Wall Street Journal that while the Fed had “a good level of the policy rate today,” there was no rush to push them higher.

Minutes from that meeting will be released later on Wednesday and could shed more light on how policy makers assessed the economy as they agreed to raise rates and, at that time, projected two more increases in 2019..

Overall, that marked the ninth increase of a quarter percentage point since December 2015, when the Fed began lifting interest rates from near zero, where they had been since the financial crisis in 2008.

Atlanta Fed President Raphael Bostic, who earlier this week said the Fed was likely to need at most a single rate increase this year, on Wednesday elaborated on that view as driven by conversations with business executives, who say they have become more defensive in preparing for slower growth by paying down debt and holding off on new plans.

Those conversations “are not consistent with the business sector ramping up,” Bostic said in remarks prepared for delivery to the Chattanooga Area Chamber of Commerce. Bostic, who backed all four rate hikes in 2018 as an FOMC voter, does not have a policy vote on the panel this year.

(Reporting by Howard Schneider in Chattanooga and Jonathan Spicer in Chicago; with reporting by Ann Saphir in San Francisco and Trevor Hunnicutt in New York; Writing by Dan Burns; Editing by Chizu Nomiyama)

Fed raises interest rates, signals more hikes ahead

A screen displays the headlines that the U.S. Federal Reserve raised interest rates as a trader works at a post on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 19, 2018. REUTERS/Brendan McDermid

By Ann Saphir and Howard Schneider

WASHINGTON (Reuters) – After weeks of market volatility and calls by President Donald Trump for the Federal Reserve to stop raising interest rates, the U.S. central bank instead did it again, and stuck by a plan to keep withdrawing support from an economy it views as strong.

U.S. stocks and bond yields fell hard. With the Fed signaling “some further gradual” rate hikes and no break from cutting its massive bond portfolio, traders fretted that policymakers could choke off economic growth.

“Maybe they have already committed their policy error,” said Fritz Folts, chief investment strategist at 3Edge Asset Management. “We would be in the camp that they have already raised rates too much.”

Interest rate futures show traders are currently betting the Fed won’t raise rates at all next year.

Wednesday’s rate increase, the fourth of the year, pushed the central bank’s key overnight lending rate to a range of 2.25 percent to 2.50 percent.

In a news conference after the release of the policy statement, Fed Chairman Jerome Powell said the central bank would continue trimming its balance sheet by $50 billion each month, and left open the possibility that continued strong data could force it to raise rates to the point where they start to brake the economy’s momentum.

Powell did bow to what he called recent “softening” in global growth, tighter financial conditions, and expectations the U.S. economy will slow next year, and said that with inflation expected to remain a touch below the Fed’s 2 percent target next year, policymakers can be “patient.”

Fresh economic forecasts showed officials at the median now see only two more rate hikes next year compared to the three projected in September.

But another message was clear in the statement issued after the Fed’s last policy meeting of the year as well as in Powell’s comments: The U.S. economy continues to perform well and no longer needs the Fed’s support either through lower-than-normal interest rates or by maintaining of a massive balance sheet.

“Policy does not need to be accommodative,” he said.

In its statement, the Fed said risks to the economy were “roughly balanced” but that it would “continue to monitor global economic and financial developments and assess their implications for the economic outlook.”

The Fed also made a widely expected technical adjustment, raising the rate it pays on banks’ excess reserves by just 20 basis points to give it better control over the policy rate and keep it within the targeted range.

Federal Reserve Board Chairman Jerome Powell arrives at his news conference after a Federal Open Market Committee meeting in Washington, U.S., December 19, 2018. REUTERS/Yuri Gripas

Federal Reserve Board Chairman Jerome Powell arrives at his news conference after a Federal Open Market Committee meeting in Washington, U.S., December 19, 2018. REUTERS/Yuri Gripas

CHOPPY WATERS

The decision to raise borrowing costs again is likely to anger Trump, who has repeatedly attacked the central bank’s tightening this year as damaging to the economy.

The Fed has been raising rates to reduce the boost that monetary policy gives to the economy, which is growing faster than what central bank policymakers view as a sustainable rate.

There are worries, however, that the economy could enter choppy waters next year as the fiscal boost from the Trump administration’s spending and $1.5 trillion tax cut package fades and the global economy slows.

“I think that markets were looking for more in terms of the pause,” said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia.

“It’s not as dovish as expected, but I do believe the Fed will ultimately back off even further as we move into the new year.”

The benchmark S&P 500 index <.SPX> tumbled to a 15-month low, extending a streak of volatility that has dogged the market since late September. The index is down nearly 15 percent from its record high.

Benchmark 10-year Treasury yields fell as low as 2.75 percent, the lowest since April 4.

ECONOMIC PROJECTIONS

Fed policymakers’ median forecast puts the federal funds rate at 3.1 percent at the end of 2020 and 2021, according to the projections.

That would leave borrowing costs just above policymakers’ newly downgraded median view of a 2.8 percent neutral rate that neither brakes nor boosts a healthy economy, but still within the 2.5 percent to 3.5 percent range of Fed estimates for that rate.

Powell parried three questions about whether the Fed intended to restrict the economy with its rate policy, but gave little away.

“There would be circumstances in which it would be appropriate for us to go past neutral, and there would be circumstances in which it would be wholly inappropriate to do so.”

Gross domestic product is forecast to grow 2.3 percent next year and 2.0 percent in 2020, slightly weaker than the Fed previously anticipated. The unemployment rate, currently at a 49-year low of 3.7 percent, is expected to fall to 3.5 percent next year and rise slightly in 2020 and 2021.

Inflation, which hit the central bank’s 2 percent target this year, is expected to be 1.9 percent next year, a bit lower than the 2.0 percent forecast three months ago.

There were no dissents in the Fed’s policy decision.

(Reporting by Ann Saphir and Howard Schneider; Additional reporting by Lewis Krauskopf in New York; Editing by Paul Simao and Dan Burns)

Fed expected to increase rates, may signal fewer hikes ahead

FILE PHOTO: U.S. President Donald Trump looks on as Jerome Powell, his nominee to become chairman of the U.S. Federal Reserve, speaks at the White House in Washington, U.S., November 2, 2017. REUTERS/Carlos Barria/File Photo

By Ann Saphir and Howard Schneider

WASHINGTON (Reuters) – The U.S. Federal Reserve is expected to raise interest rates on Wednesday, but may cut the number of hikes it anticipates next year and signal an earlier end to its monetary tightening in the face of financial market volatility and rising recession fears.

The central bank is due to announce its decision at 2 p.m. EST (1900 GMT) after its final two-day policy meeting of the year. Fed Chairman Jerome Powell is scheduled to hold a press conference half an hour later.

Investors widely expect the Fed will lift borrowing costs by a quarter of a percentage point to a range of between 2.25 percent and 2.50 percent. It would be the fourth rate hike of the year and the ninth since the central bank began its current tightening cycle in December 2015.

A rate hike on Wednesday could draw the ire of the White House. President Donald Trump has repeatedly attacked the Fed for raising rates this year, saying it was undercutting his efforts to boost the economy. On Tuesday, Trump warned Fed policymakers not to “make yet another mistake.”

The Fed’s tightening is designed to reduce the monetary policy boost to a U.S. economy that is now growing much faster than central bank policymakers think it can sustain.

With the price of oil tumbling, economic growth in Europe and China slipping, and the fiscal stimulus from the Trump administration’s $1.5 trillion tax cut package expected to fade, Fed policymakers appear ready to back away from their prior view that the economy could weather three more rate hikes next year.

Fresh Fed economic forecasts to be released along with the policy statement may suggest that two rate hikes is more likely, economists say. Traders of interest rate futures do not even think the Fed will manage one hike.

“You are at an inflection point,” said Carl Tannenbaum, chief economist at Northern Trust. “You are most likely seeing growth slowing and you don’t know how much growth and what kind of growth is left over after the fiscal stimulus wears off. And that’s why they don’t know if they need zero, one, or more rate hikes.”

U.S. stocks were broadly higher Wednesday morning on investor optimism the Fed would signal it was near the end of its tightening cycle. The S&P 500 index & SPX has tumbled more than 12 percent since late September and, barring a turnaround, is on pace for its poorest December performance since 1931.

With borrowing costs after Wednesday’s expected rate hike close to, if not in, the broad range that Fed officials have identified as “neutral” for a healthy economy, policymakers are also likely to emphasize that future rate-setting decisions will hinge on new economic data.

That may be particularly important as data pulls the central bank in different directions, with a strong labor market and robust output suggesting the need for higher rates, and a weaker global economy and U.S. bond yields suggesting not.

The divergence between the U.S. economy and the rest of the world was cast into stark relief after FedEx Corp slashed its profit outlook on Tuesday. FedEx, seen as a bellwether for global trade, flagged a litany of issues including a Brexit-led slowdown in the United Kingdom, a contraction in the German economy and slowing China demand due to an ongoing trade spat with the United States.

FORWARD GUIDANCE

Economists say the Fed will probably modify or remove from its policy statement a reference to the likelihood that “further gradual increases” in its key overnight lending rate will be needed.

Doing so would mark one more step in the Fed’s march away from its reliance on forward guidance to shape market expectations in the wake of the 2007-2009 financial crisis and recession.

It could also help the central bank guard against criticism, whether from Trump or others, by allowing Powell to point to the economic realities on the ground as forcing his hand on any future rate hikes.

“They want to get to the place where they can say all decisions are data-dependent,” said Vincent Reinhart, chief economist at Standish Mellon Asset Management.

(Editing by Paul Simao)

Fed’s Powell: U.S. economy performing ‘very well’ though benefits uneven

FILE PHOTO: Federal Reserve Board Chairman Jerome Powell speaks at his news conference after the two-day meeting of the Federal Open Market Committee (FOMC) on interest rate policy in Washington, U.S., June 13, 2018. REUTERS/Yuri Gripas/File Photo/File Photo/File Photo

(Reuters) – The U.S. economy is “performing very well overall,” Federal Reserve Chairman Jerome Powell said in remarks prepared for the opening of a rural housing conference in Washington.

The job market in particular “by many national-level measures…is very strong,” with unemployment at a 50-year low, Powell said, capping a week of widespread market nervousness with a reminder that the U.S. economy continues to expand.

Powell’s brief prepared statement did not address monetary policy or the Fed’s upcoming meeting, at which the central bank will decide whether to raise interest rates and will also release new economic projections for the coming year.

Powell noted to the Housing Assistance Council, a nonprofit that focuses on rural housing issues, that the benefits of the ongoing recovery have not spread evenly around the country but have been concentrated in major cities.

“Some communities have yet to feel the full benefits of the ongoing expansion,” Powell said, with double-digit unemployment still the norm in more than two dozen counties and nearly a third of rural homes without broadband internet.

(Reporting by Howard Schneider in Indianapolis; editing by Diane Craft)