PARIS: Just how fast the Federal Reserve hikes rates next year will be the all-important question global investors will be hoping to get answered when the US central bank meets this week. But Fed policymakers are likely to leave them guessing until the Trump administration clarifies its tax cutting and infrastructure spending plans, economists say. There is little doubt that the Fed will raise interest rates for the first time in a year on Wednesday, with markets pricing in a near 100 per cent chance for a quarter percentage point increase in its target range.
“With a rate hike being fully priced in, the focus will be on the statement and the updated Summary of Economic Projections,” Unicredit economists wrote in a research note.
“While financial markets have gotten excited about the prospects of fiscal stimulus by the incoming administration, we expect that FOMC members won’t incorporate such a scenario into their forecasts until it has been approved,” they added.
The Fed increasingly stands out among major central banks with its tighter monetary policy after the European Central Bank extended its asset purchases on Thursday until at least the end of 2017, albeit at a slower pace.
Meanwhile, the Bank of England is widely expected to keep its key rate steady at 0.25 per cent at a policy-setting meeting on Thursday and well beyond as it juggles risks from inflation, growth and Britain’s decision to quit the European Union.
On the data front, flash purchasing manager indexes from major economies on Thursday and various US business confidence surveys will offer clues as to how well confidence is holding up heading towards the end of the year.
Along with US retail sales data on Wednesday, investors will in particular be looking for any signs that the prospect of anticipated tax cuts and stimulus is already boosting morale.
“Anecdotes and surveys suggest that business and consumer confidence has improved following the election,” Bank of America Merrill Lynch economists Michelle Meyer and Alexander Lin wrote in a research note.
“The gain in animal spirits could amplify the boost to the economy from fiscal stimulus, creating upside risk to our forecast” for 2.0 per cent US growth in 2017 and 2.5 per cent in 2018, they added.
In that light, investors will also be focusing on a December 15 news conference US President-elect Donald Trump scheduled last month for any hints about his economic policy
plans. — Reuters
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