Federal Reserve meets, interest rate hike expected

Federal Reserve meets, interest rate hike expected
By Euronews
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The Federal Reserve's policy meeting is expected to end with a 0.25 percent interest rate rise, but all eyes are on Donald Trump to see how he reacts.


A crucial meeting is underway for the US central bank, the Federal Reserve.

With Donald Trump – a harsh critic of the Fed about to become president – its policymakers are expected to announce an interest rate increase, almost certainly of 0.25 percent.

Since the election, Chair Janet Yellen and other top bank officials have spoken publically about the importance of monetary policy independence and all eyes will be on Trump’s Twitter feed to see how he reacts – if he does.

Yellen back in focus after Trump reshapes markets https://t.co/ehzyEPSD3O

— Financial Times (@FinancialTimes) December 13, 2016

At the end of the two-day gathering on Wednesday the Fed will also release its latest economic forecasts.

That will give the financial world some idea as to how the surprise US election result might have reshaped the central bank’s outlook for growth and inflation.

Despite his criticism of outgoing president Barack Obama, Trump is inheriting a strong economy, which grew by 3.2 percent in the third quarter, the fastest pace in two years.

But there are concerns that Trump’s plan to reduce taxes, cut regulation and increase infrastructure spending could fuel higher inflation.

Will Trump Tweet?

The president-elect will be under scrutiny after the Fed meeting for clues about how he plans to handle his relationship with the central bank.

“There is a real risk that he could be openly critical of the decision to raise rates next week,” Paul Ashworth, an economist with Capital Economics, said in a note last week.

That could upset markets and raise serious issues about whether Trump intends to leave the Fed alone or try to influence its decisions.

Top US elected officials, in particular the president, typically avoid criticising the Fed’s short-term rate decisions, emphasising instead the need for monetary policy to be set independently.

“If he remains silent after the announcement to raise interest rates next Wednesday, then we can begin to assume that it will be business as usual for the Fed,” Ashworth wrote.

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