Business

US Fed to raise rates with trade tensions on horizon

WASHINGTON The Federal Reserve this week will fire the opening salvo in a series of interest rate hikes this year, hoping to get out in front of an expected pickup in inflation.

The first rate hike of the year is overwhelmingly predicted by futures markets, analysts and investors alike to come Thursday (Singapore time) at the conclusion of the Fed's two-day policy meeting. It also will be the first under newly-installed Fed Chairman Jerome Powell.

The central bank is preparing to raise the key lending rate as economic conditions converge to put upward pressure on prices, including massive new tax cuts, a weaker dollar and even the threat of a trade war.

Fears the Fed could raise its benchmark interest rate at a faster pace, perhaps as many as four times this year, spooked markets last month, briefly sparking a global stocks selloff in early February.

But Fed officials have called for calm, signaling that even the planned steady but gradual monetary policy tightening should not interrupt the momentum of the world's largest economy, which they say has enough slack to allow for continued low unemployment and some wage increases without sparking inflation.

"They're trying to prepare the markets and say, 'Let's not go crazy,'" Dr Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, told AFP.

But like other economists, he now expects four hikes this year rather than three.

"I predict they will have to. It's not a bad thing. It's a good thing."

Fed officials will also update their quarterly forecasts for the economy and the path of interest rates this week.

With stocks on edge last month, Mr Powell told lawmakers his outlook for the US economy had "strengthened since December."

Since the Fed's last policy meeting in January, economic data has been somewhat mixed, weighing on expectations for GDP growth in the first quarter: the trade deficit continues to widen, retail and auto sales as well as the housing market have been weaker, durable goods orders have undershot expectations and construction spending has been soft.- AFP

BUSINESS & FINANCE