By Martin Crutsinger ,AP
WASHINGTON — There isn’t much doubt about what the Federal Reserve will do when its latest policy meeting ends Wednesday: It’s all but certain to raise its benchmark interest rate — its first increase in a year.
The real anticipation surrounds what Fed officials may or may not say about the pace of future rate hikes against the backdrop of Donald Trump’s election.
Will they signal that they expect to raise rates very gradually in the coming year? Or will they say the risk of high inflation resulting from Trump’s tax and spending plans may require accelerated rate hikes?
On this, economists and investors agree: The Fed will raise its key rate by a modest quarter-point to a range of 0.5 percent to 0.75 percent — a move that will likely lead to slightly higher rates on some consumer and business loans. The Fed last increased rates last December, when it raised its benchmark rate from a record low set at the depths of the 2008 financial crisis. Rates Hikes “Never has the Fed telegraphed a rate hike as thoroughly as this one,” said David Jones, chief economist at DMJ Advisors.
Yet how the Fed will devise its rate policies in light of Trump’s policies isn’t clear and might not be clear even after it issues a statement and Chair Janet Yellen holds a news conference Wednesday.
Wall Street, for its part, has already signaled its response to Trump’s election: Investors have sent stock prices surging to record highs and driven up longer-term rates in anticipation that Republican control of the White House and Congress will allow Trump to cut taxes, ease regulations and accelerate infrastructure spending. Many appear to think those actions, in turn, will increase economic growth, inflation and corporate profits.
Some Fed watchers expect faster growth to cause the central bank to shift its focus from trying to energize the economy to considering ways to counter the risk of too-high inflation. On that assumption, some are revising their forecasts for Fed rate hikes in 2017.
Before Trump’s victory, the consensus view was for two Fed rate increases next year. Now, some say they foresee three or possibly up to four hikes. The expectation for higher rates in part reflects a job market that has vastly improved, with the unemployment rate at a nine-year low of 4.6 percent.
“I think the rate hike this week will be the start of a series of rate hikes,” said Mark Zandi, chief economist at Moody’s Analytics. “Financial markets are buoyant after the election, the economy is very close to full employment and inflation is moving toward the Fed’s 2 percent target. All the conditions are in place for higher interest rates.”
Other analysts suggest that the ever-cautious Fed will be slow to announce any major policy shifts. For one thing, Trump’s economic program still must win congressional approval and could undergo significant change along the way.