Tag Archives: Federal Reserve

U.S. retail sales, jobless claims data brighten economic picture

FILE PHOTO: People walk with shopping bags at Roosevelt Field mall in Garden City, New York, U.S., December 7, 2018. REUTERS/Shannon Stapleton

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales increased by the most in 1-1/2 years in March as households boosted purchases of motor vehicles and a range of other goods, the latest indication that economic growth picked up in the first quarter after a false start.

The economy’s enduring strength was underscored by other data on Thursday showing the number of Americans filing applications for unemployment benefits dropped to the lowest in nearly 50 years last week.

Fears of an abrupt slowdown in activity escalated at the turn of the year after a batch of weak economic reports. But those concerns have dissipated in recent weeks amid fairly upbeat data on trade, inventories and construction spending that have suggested growth last quarter could actually be better than the moderate pace logged in the final three months of 2018.

A report from the Federal Reserve on Wednesday described economic activity as expanding at a “slight-to-moderate” pace in March and early April. The Fed’s “Beige Book” report of anecdotal information on business activity collected from contacts nationwide showed a “few” of the U.S. central bank’s districts reported “some strengthening.”

“Supported by strong labor market conditions and improving wage growth, household spending appears well positioned to increase in the coming months,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. “Fears about the softening in the economy were overblown.”

The Commerce Department said retail sales surged 1.6 percent last month. That was the biggest increase since September 2017 and followed an unrevised 0.2 percent drop in February.

Economists polled by Reuters had forecast retail sales would accelerate 0.9 percent in March. Retail sales in March advanced 3.6 percent from a year ago.

With March’s rebound, retail sales have now erased December’s plunge, which had put consumer spending and the overall economy on a sharply lower growth trajectory. Retail sales last month were probably lifted by tax refunds, even though they have been smaller than in previous years, following the revamping of the U.S. tax code in January 2018.

Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 1.0 percent in March after a downwardly revised 0.3 percent decline in February. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

They were previously reported to have decreased 0.2 percent in February. Consumer spending accounts for more than two-thirds of economic activity and is being buoyed by a tightening labor market that is driving up wage growth.

STRONG LABOR MARKET

A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits dropped 5,000 to a seasonally adjusted 192,000 for the week ended April 13, the lowest level since September 1969. Claims have now declined for five straight weeks. Economists had forecast claims would rise to 205,000 in the latest week.

Though the trend in hiring has slowed, job gains remain above the roughly 100,000 needed per month to keep up with growth in the working-age population. The unemployment rate is at 3.8 percent, near the 3.7 percent Fed officials project it will be by the end of the year.

The dollar was trading higher against a basket of currencies while stocks on Wall Street were mixed. Prices of U.S. Treasuries were up.

March’s strong core retail sales could result in the further upgrading of first-quarter GDP estimates. Growth forecasts for the first quarter were boosted to around a 2.5 percent annualized rate on Wednesday after data showed the U.S. trade deficit narrowed for a second straight month in February.

First-quarter growth forecasts have been raised from as low as a 0.5 percent rate following relatively strong reports on trade, inventories and construction spending. The economy grew at a 2.2 percent pace in the fourth quarter.

Another report from the Commerce Department on Thursday showed business inventories rose in February and stock accumulation in the prior month was a bit stronger than initially estimated, a potential boost to growth.

Stronger growth in the first quarter will probably not change the view that the economy will slow this year as the stimulus from a $1.5 trillion tax cut package diminishes and the impact of interest rate hikes over the last few years lingers.

It also is unlikely to have any impact on monetary policy after the Fed recently suspended its three-year campaign to tighten monetary policy. The central bank dropped projections for any rate hikes this year after increasing borrowing costs four times in 2018.

In March, sales at auto dealerships jumped 3.1 percent, the most since September 2017. Receipts at service stations increased 3.5 percent, likely reflecting higher gasoline prices.

Receipts at clothing stores shot up 2.0 percent, the largest increase since last May. There were also increases in sales at furniture outlets, electronics and appliances shops, and food and beverage stores. Sales at building materials and garden equipment and supplies also rose last month.

Online and mail-order retail sales increased 1.2 percent in March. Sales at restaurants and bars climbed 0.8 percent, the most since last July. But receipts at hobby, musical instrument and book stores fell 0.3 percent last month.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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)

Fed says U.S. economy ended 2018 with solid but weakening growth

FILE PHOTO: Flags fly over the Federal Reserve Headquarters on a windy day in Washington, U.S., May 26, 2017. REUTERS/Kevin Lamarque/File Photo/File Photo

By Howard Schneider and Pete Schroeder

WASHINGTON, Feb 22 (Reuters) – The U.S. economy maintained “solid” growth through the second half of 2018, likely expanding “just under” 3 percent for the year, though consumer and business spending had begun to weaken, the Federal Reserve said on Friday in its semi-annual monetary policy report to Congress.

In a document that balanced its mostly positive outlook for a still growing economy against an array of emerging domestic and global risks, the U.S. central bank laid out why it had put further interest rate hikes on hold last month.

From a “deteriorated” appetite for risk among investors to a slowdown in China, the outlook for policy is “more uncertain than earlier,” the Fed said, noting “softer global and economic conditions.”

That may spill into the start of 2019, the Fed said, noting that the recent 35-day partial shutdown of the U.S. government “likely held down GDP growth in the first quarter of this year.”

For 2018, the Fed said: “Consumer spending expanded at a strong rate for most of the second half … though spending appears to have weakened toward year-end.”

“Business investment grew as well, though growth seems to have slowed somewhat,” it added.

Consumer and business confidence remains “favorable,” but “some measures have softened since the fall,” the Fed reported. “Domestic financial conditions for businesses and households have become less supportive of economic growth.”

The Fed noted to Congress that it would continue to reduce the size of its balance sheet, which had declined by about $260 billion since its last report to lawmakers, ending the year at close to $4 trillion. But the central bank also repeated its new openness to adjusting “any of the details” of its balance sheet plan if economic and financial conditions warrant.

POWELL HEADS TO CONGRESS

Fed Chairman Jerome Powell will testify before lawmakers in the U.S. Senate and House of Representatives on Tuesday and Wednesday to elaborate on the report in what could prove to be an important week for economic data and the central bank’s sense of where the economy is heading.

The report indicated some underlying economic strength, with “ongoing improvements in the labor market,” and solid growth in disposable income, fueled by the Trump administration’s tax cuts, boosting household consumption.

Inflation last year remained close to the Fed’s 2 percent target.

But the Fed noted headwinds, including those tied to the ongoing debate over global trade policy. Overall, net exports “likely subtracted a little from real GDP growth” over 2018, despite the administration’s efforts to improve the U.S. trade position.

At a policy meeting late last month, Fed officials put their three-year push for higher interest rates on hold amid a broad recognition that inflation and global growth had weakened, and that the U.S. outlook was less certain than just a few weeks earlier.

Since then, economic data has been mixed, with weaker retail sales and manufacturing reports balanced by continued strong job growth.

But some important pieces of the puzzle have been missing altogether. Most notably, the report on gross domestic product for the last quarter of 2018 was delayed by the recent government shutdown.

That report is due to be released on Thursday, and will be followed on Friday by the jobs report for February.

(Reporting by Howard Schneider and Pete Schroeder Editing by Paul Simao) ((howard.schneider@thomsonreuters.com; +1 202 789 8010;))

U.S. weekly jobless claims retreat from one-and-a-half-year high

Job seekers and recruiters gather at TechFair in Los Angeles, California, U.S. March 8, 2018. REUTERS/Monica Almeida

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing applications for unemployment benefits dropped from near a 1-1/2-year high last week, but the decline was less than expected, suggesting some moderation in the pace of job growth.

Still, the Labor Department’s report on Thursday continued to point to strong job market conditions, which should underpin the economy amid rising headwinds, including a fading fiscal stimulus boost and a trade war between Washington and Beijing, as well as slowing growth in China and Europe.

The Federal Reserve last week kept interest rates steady but said it would be patient in lifting borrowing costs further this year in a nod to growing uncertainty over the economy’s outlook. The U.S. central bank removed language from its December policy statement that risks to the outlook were “roughly balanced.”

“Labor market conditions remain quite positive, good news for workers, for the consumer sector and the economy more broadly,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.

Initial claims for state unemployment benefits tumbled 19,000 to a seasonally adjusted 234,000 for the week ended Feb. 2, the Labor Department said on Thursday. The drop partially unwound the prior week’s jump, which lifted claims to 253,000, the highest reading since September 2017.

Claims that week were boosted by layoffs in the service industry in California, most likely striking teachers in Los Angeles.

A 35-day partial shutdown of the federal government as well as difficulties adjusting the data around moving holidays like Martin Luther King Jr. day, which occurred later this year than in recent years, also probably contributed to the spike in filings.

The longest shutdown in history likely forced workers employed by government contractors to file claims for unemployment benefits.

The shutdown ended on Jan. 25 after President Donald Trump and Congress agreed to temporary government funding, without money for his U.S.-Mexico border wall.

Economists polled by Reuters had forecast claims falling to 221,000 in the latest week.

U.S. stocks were trading lower on renewed fears of a global slowdown after the European Union cut its economic growth forecasts and White House adviser Larry Kudlow warned there was still a sizable distance to go on U.S.-China trade talks. The dollar was little changed against a basket of currencies, while U.S. Treasury prices rose.

MOMENTUM SLOWING

The Labor Department said no states were estimated last week. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 4,500 to 224,750 last week. Claims by federal government workers, which are filed separately and with a one-week lag fell 8,070 to 6,669 in the week ended Jan. 26.

“Claims remain important to watch in the weeks ahead,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in White Plains, New York. “The data are suggesting at least some slowing in employment growth.”

The government reported last Friday that non-farm payrolls increased by 304,000 jobs in January, the largest gain since February 2018. Thursday’s claims report showed the number of people receiving benefits after an initial week of aid fell 42,000 to 1.74 million for the week ended Jan. 26.

These so-called continuing claims had raced to a nine-month high in the prior week. The four-week moving average of continuing claims rose 4,250 to 1.74 million.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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)

Wall St. hits fresh year-lows on threat of government shutdown, slowing growth

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 21, 2018. REUTERS/Bryan R Smith

By Medha Singh

(Reuters) – Wall Street fell in volatile trading on Friday, after a few failed attempts at a rally, led by a drop in technology and other high-growth sectors, while defensive stocks rose amid concerns of slowing growth and a looming government shutdown.

The three major indexes swung between losses and gains of more than 1 percent as fragile investor nerves were tested by news of turmoil in Washington and soothing comments from an influential Federal Reserve official.

The S&P 500, already on pace for its worst December since the Great Depression, hit its lowest since August 2017. The Dow fell to its lowest since October 2017, while the Nasdaq sank to a 15-month low, toying with bear market territory for the second day in a row.

The defensive consumer staples, utilities and real estate sectors logged gains of 0.1 percent to 0.77 percent, while all the other eight S&P sectors declined.

“Investors are looking for cover. Within equities, investors are certainly gravitating towards the traditionally defensive segments of the market,” said Mike Loewengart, vice-president of investment strategy at E*TRADE Financial in New York.

The technology index sank 1.54 percent, while communication services, which houses high-growth names such as Facebook Inc and Alphabet Inc, dropped 2.2 percent.

President Donald Trump said there was a very good chance a government funding bill, which included funding for a wall along Mexico border, would not pass the Senate. Those worries were compounded by the sudden resignation of U.S. Defense Secretary Jim Mattis.

“I think it’s a confluence of all the known issues that the investors have been digesting for the last few weeks. We have the prospect of a government shutdown today. We have more shakeups within the Trump administration,” Loewengart said.

The markets got a lift earlier after New York Fed President John Williams said on CNBC the central bank is open to reassessing its views and listening to market signals that the economy could fall short of expectations.

Williams’ comments come after the Fed said on Wednesday it would largely stick to its plan to keep raising interest rates, spooking investors already grappling with mounting evidence of slowing growth and triggering the slide on Wall Street.

At 1:20 p.m. ET, the Dow Jones Industrial Average was down 169.07 points, or 0.74 percent, at 22,690.53, the S&P 500 was down 24.57 points, or 1.00 percent, at 2,442.85 and the Nasdaq Composite was down 127.58 points, or 1.95 percent, at 6,400.83.

Adding to the mix was “quadruple-witching,” when options on stocks and indexes as well as futures on indexes and stocks expire, tending to raise volumes.

Helping stanch the bleeding on Friday was Nike Inc, which jumped 6.2 percent after the company’s quarterly results beat Wall Street estimates on strength in North America. The stock was the biggest driver of gains on the Dow and S&P.

The three main Wall Street indexes are already in correction territory, having fallen more than 10 percent from their record closing highs. They are closing in on bear market territory, which is marked when an index closes more than 20 percent below its closing high.

Declining issues outnumbered advancers for a 2.52-to-1 ratio on the NYSE and a 3.32-to-1 ratio on the Nasdaq. The S&P index recorded no new 52-week highs and 102 new lows, while the Nasdaq recorded four new highs and 659 new lows.

(Reporting by Medha Singh in Bengaluru; Editing by Shounak Dasgupta)

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)