Fed set for two-day meeting but no action expected

2 min

Washington (AFP)

The US Federal Reserve was due to begin a two-day monetary policy meeting on Tuesday but observers expect there will be no change in interest rates amid the current economic and political uncertainty.

Central bankers have been cautious about raising rates too quickly, and likely will tread cautiously as the Trump administration continues to send shock waves around the world, threatening to cancel trade pacts and impose new tariffs, criticizing trade partners and promising economic stimulus and slashed regulation.

But concrete policies have yet to take shape and members of the Federal Open Market Committee, which sets the benchmark federal funds interest rate, have cited "considerable uncertainty" about the economic outlook early in President Donald Trump's term.

This leaves Fed policymakers on the sidelines waiting to see what policies emerge before assessing how they might impact the economy.

The Fed last month adopted only its second interest rate in a decade -- puting the target range for the overnight lending rate at between 0.5 and 0.75 percent. Most FOMC members have resisted raising rates too quickly at the risk of interrupting a tentative recovery.

The Fed indicated in December that it expected to implement three interest rate increases this year, but that will depend on how the economic data develops.

Data released since the last meeting show continued job gains and economic growth, with inflation inching higher, but puts no additional pressure on the Fed to act any time soon.

The US economy grew at a tepid 1.6 percent in 2016. And while there have been some signs of a pickup in inflation it continues to run below the Fed's two percent target.

Jared Bernstein, who was an economic adviser to former vice president Joe Biden, told AFP it may be some time before the impact of any Trump policies are visible in economic indicators watched by the Fed.

"I wouldn't assume there's going to be a big fiscal impulse in the data," Bernstein said. "Remember this is a watch-and-see Fed. I appreciate the extent to which they're data-dependent."

In any case, Congress will have to enact any tax cuts, or new budget with new infrastructure spending.

"Let's see what the budget is and how it's created by the Congress," said Edwin Truman, a former Fed staff economist now at the Peterson Institute for International Economics in Washington. "I don't think anybody has a good fix on fiscal policy yet."