WRAPUP 1-Fed likely to raise rates, possibly end 'accommodative' policy era
(Repeats with no changes to text)
* U.S. central bank expected to lift rates on Wednesday
* Policy statement due at 2 p.m. EDT (1800 GMT)
* Fed chief Powell to hold press conference
By Howard Schneider
WASHINGTON, Sept 26 (Reuters) - With the Federal Reserve
widely expected to raise interest rates on Wednesday, financial
markets are focused on whether signs of an acceleration in U.S.
economic growth will prompt the central bank to ramp up the pace
of monetary policy tightening.
This week's two-day policy meeting could mark the formal end
of the "accommodative" level of rates the Fed has used to
support the American economy since the onset of the 2007-2009
The Fed's current policy statement has included that
description of loose policy as a staple element in recent years,
though officials recently have described it as out of date and
likely to be removed, either this week or in the near future.
The probability the Fed will raise its benchmark overnight
lending rate by a quarter of a percentage point on Wednesday, in
what would be its third hike this year, is nearly 95 percent,
based on an analysis of fed fund futures contracts by CME Group.
The larger question is whether the Fed reshapes its monetary
policy outlook for the next few years to factor in stronger GDP
growth or whether concerns about a possible global trade war or
economic slowdown cause it to stick close to its current view.
Gross domestic product grew at a 4.2 percent annualized rate
in the second quarter, according to U.S. Commerce Department
data released last month. The economy grew at a 2.2 percent pace
in the first quarter.
Some analysts are expecting a more aggressive tilt, whether
it comes in the policy statement due to be released at 2 p.m.
EDT (1800 GMT), the accompanying economic and interest rate
projections from policymakers, or Fed Chairman Jerome Powell's
press conference after the conclusion of the meeting.
"Financial markets should prepare for a more hawkish tone,"
Natixis economists Joseph Lavorgna and Thomas Julien wrote ahead
of the meeting.
"Another quarter of 4 percent real GDP growth coupled with
faster wage gains will likely cause policymakers to err on the
side of aggressiveness at some point ... Investors may soon have
to contend with the fact that the Fed is going to press harder
to dampen ebullient economic activity."
In its last round of economic projections in June, the Fed
forecast the economy would grow 2.8 percent this year, a figure
several central bank officials have since publicly notched
The unemployment rate, currently 3.9 percent, is at a level
considered beyond what can be sustained without putting upward
pressure on wages and inflation, and consumer confidence is
strong, having hit an 18-year high in September.
In addition, equity markets have largely sloughed off the
risk that the economy will be derailed by a global trade war.
Some Fed policymakers have said they feel a recent jump in
U.S. wages is just the first of more to come.
Powell, who took over as head of the Fed earlier this year,
has emphasized managing risks in a way that indicates he is more
on guard about a possible jump in inflation than in trying to
push unemployment rates ever lower.
Investment bank Goldman Sachs predicts the Fed will raise
rates four times in 2019, faster than the three hikes suggested
by policymakers in their projections in June or the two to three
increases foreseen by investors.
The Fed's benchmark overnight lending rate is currently set
in a target range of between 1.75 percent and 2.00 percent.
"In light of the economy's impressive growth momentum, the
upward trends in wage and price inflation, and the limited
overall tightening in financial conditions achieved so far, on
net we think the risks to the funds rate are tilted to the
upside," Goldman Sachs economists Jan Hatzius and others wrote
in a preview of this week's Fed meeting.
(Reporting by Howard Schneider
Editing by Paul Simao)
First Published: 2018-09-26 07:00:00
Updated 2018-09-26 13:00:00
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