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Sunday, June 24, 2018

With rate hike in the bag

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With the Federal Reserve virtually guaranteed to raise interest rates this week, investors are focused on how the US central bank characterizes its monetary policy as borrowing costs return to more normal levels amid an ongoing economic expansion.

In what could be the most consequential rewrite of its policy statement in two-and-a-half years, the Fed may signal how close it is to stopping its rate hike cycle, whether faster economic growth warrants ramping up the pace of tightening, and if it feels the era of loose money is, in effect, over.

The language in the Fed policy statement "is growing increasingly stale with each successive rate hike," Goldman Sachs economists Spencer Hill and Jan Hatzius wrote ahead of the start on Tuesday of the central bank's two-day policy meeting.

Hatzius predicted the policy-setting Federal Open Market Committee will, at the least, drop language it has used since late 2015 that says rates would remain below historical levels "for some time" to come.

---Reuters, Washington

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