Federal Reserve expected to raise rates

With the Federal Reserve having already begun its two-day policy meeting on Tuesday, there is a huge possibility that the first rate hike will be announced at the end of the meeting.

It is said that there will be at least three increases in the key interest rate this year in a bid to prevent the world’s largest economy from overheating after a decade of recovery. Jerome Powell, who has been recently appointed as the Federal Reserve Chairman, will hold his first press conference at the conclusion of the meeting Wednesday.

According to reports, it is also likely that the Federal Reserve will update its forecasts for the economy and how aggressively officials think the central bank will have to act in coming years. Since the Fed last met in January, economic data have been mixed and forecasts for economic growth in the first quarter have dimmed.

Weak data on retail and auto sales, durable goods orders and the housing market as well as soft construction spending and a widening trade deficit have disappointed in recent weeks. As a result, forecasters at Morgan Stanley, JP Morgan Chase and the Atlanta Federal Reserve Bank lowered their estimates for GDP growth in the first three months of the year to under two percent — well below President Donald Trump`s goal of three percent a year or higher.

First quarters generally run below trend, however, and the economy looks set to resume its healthy expansion later in the year.

Surveys of the manufacturing and services sectors show a strong head of steam, while consumer confidence and business sentiment are at record highs.

Job creation also soared in February, one of the best months of the current economic recovery, with 313,000 new positions added while unemployment remains at a historically-low 4.1 percent.

Inflation, while still tame, also seems to be poised to rise, with the Consumer Price Index gaining 2.5 percent over the last six months.

In remarks earlier this month, Fed Governor Lael Brainard, long one of the most dovish US central bankers, said times were changing, and inflation was a growing concern.

Looming on the horizon, however, is the possibility of a trade war, as Trump has launched an aggressive campaign against many imports, including the controversial steep tariffs on steel and aluminum, sparking fears of tit-for-tat retaliations and a spike in prices.

Tim Duy, an economist at the University of Oregon and a close Fed watcher, said the central bank would likely steer clear of directly addressing trade matters.

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