Will Interest Rates Remain Unchanged As Yellen Leaves?

Fed interest rates

On Wednesday it is expected that the Federal Reserve will leave rates unchanged while gesturing a continuing tightening of monetary policy later this year as the U.S. economy continues to expand and job gains remain robust.

Investors will concentrate on the U.S. central bank’s gauge of inflation, which continues to undershoot its 2 percent target, and for any type of measurement of growth from the impact of the Trump administration’s tax overhaul.  The Fed is schedule to release a statement after its two-day policy meeting at 2 p.m. EST.  This meeting marks the last for Fed Chair Janet Yellen’s as head of the central bank.

The economy has gained nearly 10 million jobs and unemployment has reached a 17-year low of 4.1 percent during Yellen’s four-year term.  Interest rates have gradually increased from the near-zero levels that were put in place to battle the recession of 2007-2009.

Yellen and incoming Fed chief Jerome Powell have worked together closely and agree that rates should remain on a sluggish path upward and permit unemployment to drop even further.  With the beginning Powell’s term as chair only days away, analysts do not anticipate a much of a change from the Fed on Wednesday.

This Won’t Be A Secret Much Longer

“Why change the current message on policy and possibly sway market opinion one way or the other, just before Powell takes over?” said Lou Brien, an analyst. “I don’t think Powell will shift the direction of policy in March, but it is only fair to give him a clean slate just in case.


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In 2017 the Fed raised rates three times and currently forecasts an additional three hikes this year. But that forecast, which has been factored in on Wall Street, will change on a continual pickup in inflation.  Even a minute upgrade in the central bank’s depiction of inflation or view of the balance of risks to the economic outlook could signal an increased pace of rate hikes than what is currently expected.

The economy grew 2.3 percent in 2017.  Several Fed policymakers believe that Trump’s overhaul of the U.S. tax code, including an estimated $1.5 trillion in corporate and individual tax cuts, should boost economic growth this year.


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