No Fed hike this week but don’t rule out more in 2019: Economists , Latest Business News - The New Paper

No Fed hike this week but don’t rule out more in 2019: Economists

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Central bank set to leave interest rates untouched despite shutdown effects and President Donald Trump's trade war with China

WASHINGTON: The US Federal Reserve will hold its fire this week, leaving interest rates untouched and letting markets calm down after a tumultuous end to 2018.

Coming off Wall Street's worst December since the Great Depression and amid mounting fears about the global economy, Fed policymakers are now unanimously hammering a single message: They will be "patient" before pulling the trigger again.

Fed Chairman Jerome Powell is likely to stick to that script when he announces the Federal Open Market Committee's latest monetary policy decision on Wednesday.

Futures markets are wagering the central bank will actually stand pat for all of 2019, with a growing share betting the Fed could even begin cutting interest rates as soon as next December.

Maybe they should think again.

While a cold wind blew at the end of last year, gathering conditions suggest the Fed could feel compelled to raise the key lending rate as soon as the spring, economists say.

"I think the danger here now is that markets are now expecting nothing," Mr Ian Shepherdson of Pantheon Macroeconomics said in a presentation on monetary policy.

"The Fed could swing around on a dime once it becomes clear that the things that have scared them are no longer very scary."

The month-long partial shutdown of the federal government - the longest in history - has been resolved with an agreement announced on Friday between the White House and Congress, but was already gnawing away at GDP.

Had the closure, which kept 800,000 federal workers idle, continued through March, it could have choked first quarter growth to "zero," chief White House economist Kevin Hassett said last week.

The Fed also is flying blind to some extent because the shutdown halted the flow of economic data from the Commerce Department, including crucial figures on housing, trade, consumption, wages and inflation. It could get some key reports next week as the government reopens.

While December saw blockbuster job creation and tame inflation, it had a batch of very gloomy numbers too.

Amid President Donald Trump's trade war with China, the US manufacturing sector could be starting to crumble, with the sector seeing its biggest one month drop in December since the global financial crisis. Consumer sentiment, which can help predict spending, also hit a two year low

Ms Kathy Bostjancic, chief US financial market economist at Oxford Economics, expects the Fed to raise rates twice this year, with the first in May at the bank's third policy meeting of 2019. Mr Shepherdson agreed, warning against counting on no Fed moves this year.

"Pricing in zero is very dangerous," he said. - AFP