WASHINGTON (Reuters) – With the Federal Reserve virtually guaranteed to raise interest rates this week, investors focus on how the central bank of the United States characterizes its monetary policy as borrowing costs return to more normal levels in the midst of an ongoing economic expansion.
In what could be the most consistent rewriting of its policy statement in two and a half years, The Fed can point out how close it is to stopping its cycle of rate increases, if faster economic growth guarantees an increase in the pace of adjustment, and if it feels that the era of loose money is, in effect, over.
The language in the Fed's policy statement "is becoming increasingly obsolete with each successive rate hike," Goldman Sachs economists Spencer Hill and Jan Hatzius wrote before the start of the policy meeting of two days of the central bank.
Hatzius predicted that the Federal Open Market Committee will establish, at a minimum, a language that it has used since the end of 2015 that says rates will remain below historical levels "for some time".
That small change would mark a broad recognition that nine years after the second longest economic expansion in the United States. UU Registered, monetary policy and the economy in general begin to look increasingly normal, both nationally and internationally.
The current cycle of monetary policy adjustment of the Federal Reserve began in December 2015, and began to cut back the huge portfolio of US Treasury bonds and mortgage-backed securities that it bought to boost the economy after the recession of 2007-2009.
The European Central Bank is expected by the end of this week to describe its own plans to stop purchases of emergency assets, highlighting Europe's rebound from the crisis. [nL3N1T933Z]
Global growth has remained strong this year despite the risk of a global trade war and concerns about rising sovereign debt levels.
Against this backdrop, it makes little sense, many analysts say, for the Fed to keep promising to keep rates low as borrowing costs reach levels that are no longer considered low on a historical basis.
The benchmark benchmark interest rate of the Federal Reserve, if it rose to a range of 1.75 percent to 2 percent this week, would be at a comparable or higher level at the end of 2001 to 2004, a period marked by the outbreak of bubble technology and the attacks of September 11, 2001.
The Fed policy statement and the new economic projections will be published at 2 pm EDT (1800 GMT) on Wednesday. Fed chairman Jerome Powell has a press conference scheduled half an hour later.
"We see hard-line nuances of the decision to raise rates and our expectation that the statement will no longer say that the (federal) funds rate is likely to remain below the long-term neutral rate," analyst Barclays Michael Gapen wrote in a recent research note.
"As the (Federal Open Market Committee) approaches neutral, we see less likelihood of making promises in the way of politics," Gapen said, referring to the level at which monetary policy does not boost or slow down economy. .
LODGING OR NOT
Futures contracts indicate a 96 percent chance that the federal funds rate will rise by a quarter of a percentage point on Wednesday, according to CME Group.
Updated forecasts from the Fed authorities will show whether they continue to wait for only an increase in the additional rate during the rest of the year, or if the recent solid economic and labor data justify a second in the short term, and perhaps a boost to the number of rate hikes planned for next year.
The US central bank UU It raised rates in March and politicians say they expect two more upward movements before the end of the year. The Fed raised rates three times last year.
For several weeks, Fed officials have been indicating that changes to the statement may be in process, although they have not been clear about their likely scope.
According to the minutes of the last policy meeting and the statements of the authorities since then, some Fed officials feel that the federal funds rate is already at or near "neutral" and, therefore, no longer it should be described as "accommodative" or directly encouraging investment and spending.
Analysts see this change as less likely at this point.
The last time there was a change was in September 2005, when rates rose from 3.50 percent to 3.75 percent, "within the range of (neutral) estimates" granted by the Fed staff at that time At the moment, Goldman Sachs analysts said.
The phrase "politics remains accommodative" was simply eliminated, without a language or substitute explanation.
Currently, the core of the Fed politicians feels that the neutral rate is around 2.9 percent, allowing a margin for maybe three or four more rate increases, and some argue that it could be increasing due to the impact of tax cuts and other fiscal measures of the Trump administration. stimulus.
Report of Howard Schneider; Editing by Paul Simao