By Paul Handley, AFP
WASHINGTON–The U.S. Federal Reserve holds its final policy meeting this week facing a conundrum most countries would love to have: slowly accelerating economic growth with no sign of inflation. The good signs in the U.S. economy ironically make it harder for the Fed to move closer to what it knows it must do sooner rather than later: begin lifting the benchmark federal funds interest rate from the zero level, where it has been for six years now. Anticipation of the move has riveted markets for two years, feeding into volatility in stocks and bonds and sharp shifts in currency markets. The two-day meeting beginning Tuesday will amount to an update to markets about where the Fed stands on its indicated plan to begin raising rates around mid-2015.
No major policy announcements are expected. The Federal Open Market Committee (FOMC) could make a modest change in its messaging policy on the eventual rate hike.
Over the past year, it has repeatedly said that a Fed funds increase would only come a ��considerable time�� after the end of the quantitative easing program, which was wound up in October. That language could be dropped for an even more opaque qualifier that would give it more flexibility, to either move quickly if growth and prices pick up unexpectedly, or hold off indefinitely if growth stalls. To this end, one Fed official has suggested the FOMC just say it will be ��patient.�� ��The Fed is striving to avoid any unpleasant market surprises,�� said IHS Global Insight in an analysis Friday. The central bankers will need patience to decide what exactly the data is telling them.