Will the Fed make its next move harder to guess?
Even when the Fed is not raising or cutting rates, it still sends signals to the market about where monetary policy is headed, through subtle, but crucial, changes in language. Some of those recent changes have sent a purposefully muddy signal, apparently meant to demonstrate flexibility to respond to events in the economy.
For example, in his testimony last month, Mr. Powell, the leader of the Federal Open Market Committee, said that “with a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that — for now — the best way forward is to keep gradually raising the federal funds rate.”
Analysts saw that phrase and honed in on “for now.”
“The inclusion of those words diluted the signal for continued gradual tightening, but not necessarily in a dovish or a hawkish way,” Jim O’Sullivan, chief United States economist for High Frequency Economics, wrote this week. “Rather, as we have been discussing, their inclusion continued the recent trend toward reduced forward guidance: The pace of tightening could be stepped up or slowed down, depending on the data.”
In other words, Wednesday’s statement might be more opaque, on purpose, to give officials move to change their plans if growth surprises anyone in the months to come.
Can the president influence the Fed?
Mr. Trump has made no secret of his disagreement with the Fed’s rate increases, tweeting twice last month that the central bank’s moves undercut the United States economy and “hurts all that we have done.”
The president, who had accused the Fed of keeping interest rates artificially low to help President Barack Obama, now appears ready to blame the central bank for trying to slow down a booming economy.
Mr. Powell has insisted the Fed is an independent body that moves in response to economic data, not political pressure. With Fed watchers expecting the third of four 2018 rate increases next month, all eyes will be on whether Fed officials give any indication their plans to raise rates have changed.
