As reported by Reuters, the US Fed is virtually guaranteed to hike rates this week, and now the market focus is going to shift to any significant changes to the central bank’s prepared statements.
Key quotes
“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 central bank’s latest 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.
That small change would mark a broad acknowledgement that, nine years into the second-longest U.S. economic expansion on record, monetary policy and the economy in general are starting to look increasingly normal, both domestically and abroad.
“We see hawkish overtones from the decision to raise rates and our expectation that the statement will no longer say that the (federal) funds rate is likely to remain below the long-run neutral rate for some time,” Barclays analyst Michael Gapen wrote in a recent research note.
“As the (Federal Open Market Committee) closes in on neutral, we see it as less likely to make promises on the path of policy,” Gapen said, referring to the level at which monetary policy neither boosts nor slows the economy.”
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