What can we expect by Fed today at 9 p.m.

The Federal Reserve is likely this week to signal that it is staying on course for tighter monetary policy, as supportive financial markets and robust corporate hiring trump concerns about surprisingly weak inflation.

The next move following June’s rate rise may come in September with the start of the process of reducing the Fed’s $4.5tn balance sheet.

How worried is the Fed about low inflation?

Core inflation has been decelerating since January, leaving the latest reading of the consumer price index excluding food and energy at 1.7 per cent.

The low inflation phenomenon is not confined to the US — last week the European Central Bank pushed back discussion of tapering its bond purchases amid questions over low price growth.

In the US, policymakers are likely to take an in-depth look at the drivers behind the subpar inflation numbers in their two-day meeting from Tuesday to Wednesday, after chair Janet Yellen insisted in Congressional testimony that she was watching the numbers “very carefully”.

The Fed has repeatedly argued that the poor readings result from one-off factors such as a fall in mobile phone charges and drug prices. But Ms Yellen on July 12 acknowledged in testimony to the House of Representatives that there could be more going on.

The following table shows results of a Bloomberg survey of 41 economists conducted July 18-20 ahead of the July 25-26 Federal Reserve meeting. Individual responses are found in an attachment to this story.

1. What are the forecasts for the upper bound of the federal funds rate following each Federal Open Market Committee meeting:

2. At what rate will the upper bound of the federal funds rate peak in this tightening cycle:

2a. When will this peak occur?

3. Inflation as measured by the Fed’s preferred personal consumption expenditures gauge is still below the central bank’s 2 percent target. In which quarter will the PCE measure show a third consecutive month of 2-percent-or-higher readings, last achieved in April 2012:

4. The average monthly increase in the core personal consumption expenditures price index was 0.02 percent from March through May. What is the minimum it will need to average in the coming months to enable the Fed to proceed with another interest rate increase this year:

5. Will the Fed make any changes in the statement it issues after next week’s meeting to suggest that it’s become more concerned about the recent weak inflation data:

6. Risks to monetary policy, in terms of growth and inflation, are primarily to the:

7. The Fed has said it will likely begin reducing its balance sheet later this year. What are the probabilities the Fed to announce the timing of the first roll-offs:

8. Minutes from the June FOMC meeting showed rising concern that increased risk tolerance could be leading to rising asset prices and financial imbalances. In your view, the Federal Reserve should:

Source: Bloomberg Pro Terminal

Jr Trader Ivan Ivanov

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