Federal Reserve Chair Janet Yellen and her colleagues will have a chance this week to signal whether they want to raise rates as soon as June. The message is likely to be it’s still an option, but far from a certainty.
Here’s what to expect when the Federal Open Market Committee releases its post-meeting statement at 2 p.m. Wednesday following a two-day meeting in Washington (no Yellen press conference is scheduled, nor are revised economic projections being released):
Staying On Hold, But Flexible
Fed policy makers will keep the federal funds target range unchanged for a third meeting following the initial hike in December, which lifted rates held near zero since 2008, according to 91 economists and strategists surveyed by Bloomberg News.
One move that could help pave the way for a June interest-rate increase would be to bring back phrasing similar to October’s statement that found risks to the outlook were “nearly balanced,” Goldman Sachs economists Jan Hatzius and Zach Pandl wrote in an April 21 report.
That kind of language means policy makers see roughly equal chances that the economy will turn out better or worse than forecast. After upgrading that assessment to “balanced” in December, officials omitted the so-called “balance of risks” clause from the January and March statements amid financial-market turmoil. Minutes from the March meeting showed that “many” officials saw the global situation posing downside risks to the U.S. economy.
“It seems like the global outlook has improved a little bit,” said Roberto Perli, a former Fed official who’s now a partner at Cornerstone Macro LLC in Washington. “If they raise the assessment, the market would upgrade the chances of a June move.”
Financial conditions have improved since the Fed’s March 15-16 meeting, with a Bloomberg gauge of market stress rising last week to the highest level since December. Stock prices, after declining the first two months of the year, have rebounded, with the Standard & Poor’s 500 Index up about 2 percent for the year.
The Resolve to Be Gradual
Another option would be for the FOMC to keep but modify its comment that “global economic and financial developments continue to pose risks.” The group, for example, could say while these developments still pose dangers, “they have improved somewhat of late,” Perli said.