A December Signal.
Fed officials have been split in recent weeks, with some such as Boston’s Eric Rosengren and San Francisco’s John Williams arguing another increase is appropriate, while others such as governor Lael Brainard pointing to sluggish inflation as reason to hold off. Ms. Yellen could forge a compromise by holding rates steady this week but using the statement or her press conference to raise expectations for a move later this year, likely in December.
The Path Forward? In December 2015, Fed officials’ median projection anticipated raising interest rates by a full percentage point in 2016, likely in four moves. By March, that projection had been cut to a half-point increase, likely in two moves. Wednesday’s release is likely to pare expectations further, perhaps to a single quarter-percentage-point increase this year. Expected for the rates maintain unchanged in September, but investors will be watching for signals when the Fed will take action.
The U.S. now seem on more stable footing. That could lead the Fed to say in its statement that the risks to its outlook are balanced or nearly balanced—meaning the economy could just as easily be stronger or weaker than forecast. A balanced risk outlook could suggest the Fed is more comfortable with the state of the economy and more willing to consider a rate increase soon.
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