Federal Reserve expected to raise short-term interest rate for 2nd time this year

WASHINGTON — The Federal Reserve is expected Wednesday to modestly raise its key short-term interest rate for the second time this year. But attention will be focused mainly on any hints that the Fed might accelerate its rate increases in the coming months.

Some economists think the Fed will signal that it expects to raise rates four times this year, up from its current projection of three raises. Others believe the central bank will stick with its projection of three rate increases, partly out of concern that rising trade tensions triggered by President Donald Trump’s aggressive policies might slow global growth.

The policymakers will reveal their action in a policy statement and in updated economic forecasts, followed by a news conference by Chairman Jerome Powell. Some analysts are speculating that Powell may announce that he will begin holding a news conference after each of the eight policy meetings the Fed holds each year, rather than only once a quarter.

The Fed’s meeting this week will be followed by policy meetings of two other major central banks — the European Central Bank on Thursday and the Bank of Japan on Friday. While Japan’s central bank isn’t expected to make any major policy shifts, anticipation is rising that the ECB may outline as early as this week plans to begin paring its bond-buying stimulus program as a prelude to ending them altogether.

When the Fed last met in May, it left its short-term rate unchanged. But it noted that inflation was edging near its 2 percent target after years of remaining undesirably low.

A gradual rise in inflation is coinciding with newfound economic strength. After years in which the economy expanded at roughly a tepid 2 percent annually, growth could top 3 percent this year. Consumer and business spending is powering the economy, in part a result of the tax cut Trump pushed through Congress late last year.

With employers hiring at a solid pace month after month, unemployment has reached 3.8 percent. Not since 1969 has the jobless rate been lower.

Beginning in 2008 in the midst of the financial crisis, the Fed kept its key rate unchanged at a record low near zero for seven years. It then raised rates once in 2015, once in 2016, three times in 2017 and once so far this year, in March. Wednesday’s expected quarter-point rate increase will raise the Fed’s benchmark rate to a range of 1.75 percent to 2 percent.

Mark Zandi, chief economist at Moody’s Analytics, said he thinks stronger growth and rising inflation will lead the Fed to raise rates four times this year and four more in 2019.

Check back for updates on this developing story and read Thursday’s Arkansas Democrat-Gazette for full details.

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