Fed likely to raise rates, may upgrade 2018 outlook

Washington: The Federal Reserve is expected to raise interest rates at its first policy meeting under Chairman Jerome Powell and may signal more hikes are coming in response to tax cuts and government spending that could further stoke a robust US economy.
The US central bank projected late last year that it would lift rates three times in 2018, but some investors believe the fiscal stimulus and recent hints of inflation pressures will push policymakers to add an additional increase to the mix.
The Fed is scheduled to issue its latest policy statement at 2 pm. Powell is due to hold a press conference half an hour later.
Fed officials have speculated in recent weeks that the stimulus could drive more Americans into an already tight labor market and lift inflation to the central bank’s 2 per cent target, or much above that level if the economy gets too hot.
Yet analysts are split over whether the Fed, which is wary of an early misstep under its new leadership, will raise policy tightening expectations until more price pressures are clearly evident, especially given outside risks to the economy such as a possible global trade war.
“A prudent institution would probably give more weight to the facts, at least for the moment,” Roberto Perli, a former Fed economist who is now a partner at Cornerstone Macro, wrote in a note predicting the Fed would stick with three projected rate increases for this year.
The Fed’s drive to stimulate the world’s largest economy in the wake of the 2007-2009 financial crisis and recession is drawing to a close. It raised its benchmark overnight lending rate three times last year, to a range of 1.25 to 1.50 per cent, as joblessness fell and economic growth accelerated. It is expected to raise rates by another 25 basis points on Wednesday.
With futures markets anticipating another increase in June, Powell’s Fed could leave its rate outlook unchanged until then to see how the economy absorbs the $1.8 trillion in stimulus expected from the Trump administration tax cuts and planned spending.