Many economists expect the central bank to say in its policy statement it is closely following global economic and financial events, as it did following a bout of market turbulence last summer.
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China has unnerved investors because of an economic slowdown that Beijing seems incapable of managing properly. During the press conference following that meeting, Fed Chair Janet Yellen “sounded overly concerned about global growth, and especially China, and those concerns spooked markets”, Canally said. Last week, the price of oil reached a 12-year low of $28.15 a barrel before rebounding slightly this week.
For more clues as to how slumping oil prices and a faltering Chinese outlook could sway policymakers in the coming months, look no further than January’s meeting of U.S. Federal Reserve rate setters.
Last week the International Monetary Fund cut its forecast for global economic growth this year to 3.4 percent, an improvement from 3.1 percent in 2015 but still 0.2 percentage point below what it predicted in October.
That decision had been taken after steady gains in the jobs market pulled the unemployment rate down to 5.0 per cent, and as the FOMC said it was “reasonably confident” that inflation, held down by falling commodity prices and the strong dollar, would begin edging up toward its 2.0 per cent goal.
When Federal Reserve officials started a rate-hiking cycle last month, they hoped their widely telegraphed policy action would neither derail the recovery nor overly destabilize financial markets.
On Dec. 16 last year, the Fed raised its Federal Funds rates to the range of 0.25 to 0.50 percent, from 0 to 0.25 percent, for the first time in nearly 10 years.
December: The Fed didn’t consider the global economy to be as much of a threat: “Overall, taking into account domestic and worldwide developments, the (Fed) sees the risks to the outlook for both economic activity and the labor market as balanced”.
Other consumer loan rates, such as those on credit cards, will match the Fed’s quarter-point increase soon if they haven’t already.
But while the yo-yoing market indexes are on the Fed’s radar, they are not likely to be a determining factor for interest rates. A handful of Fed officials have averred that the central bank will stay the course and move forward with its intended rate hikes. But it signaled that a seven-year period of near-zero rates was ending and that while borrowing costs wouldn’t be rising fast, they would be headed steadily up.
But the Fed keeping key interest rates unchanged is a less risky method, compared with those of other central banks, he added. That’s shrunk to about one, and traders see a one-in-four chance the Fed will raise rates at its meeting in March, data compiled by Bloomberg show. Still, some economists suggest that if the Fed could have foreseen what has ensued in the weeks since it raised rates, it might have reconsidered.
A prolonged drop in the stock market can sometimes – but certainly not always – signal an impending recession. Analysts say the latest iPhone models are not providing the boost Apple needs to match the massive sales growth it enjoyed a year ago. Yet they don’t see a recession as imminent. The Federal Open Market Committee expects this slow growth to continue with predictions of 2.3% to 2.5% percent growth for 2016 and 2.0% to 2.3% growth for 2017. The Fed may make some slight changes to its policy statement to express concern in particular about intensified global pressures.
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FED PLANS: Investors were watching Wednesday’s Fed statement for signs of the pace of possible future rate hikes.
