Investors Look for Clues on Path of Fed Interest-Rate Rises
Federal Reserve officials are widely expected to leave short-term interest rates unchanged at their meeting this week, following a dismal May jobs report. The Fed’s read on the economy and the risks it faces may shed light on whether officials are open to a rate increase in July or want to wait for more data. The central bank releases its latest policy statement and economic and interest-rate projections at 2 p.m. EDT Wednesday. Chairwoman Janet Yellen is scheduled to hold a news conference at 2:30 p.m. Here are five things to watch:
The Domestic Economy
Officials will likely modify their assessment of the employment outlook in their policy statement Wednesday, acknowledging the sharp hiring slowdown in May that Ms. Yellen dubbed “concerning” in her June 6 speech. Other labor-market data has been mixed: New jobless claims remain at historic lows, but the hiring rate slowed in April. On the other hand, the Fed could upgrade its assessment of economic growth amid signs of stronger demand.
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The Brexit Vote
The June 23 British referendum on whether to leave the European Union “could have significant economic repercussions,” Ms. Yellen warned last week. With the vote a little more than a week away, and the latest polls showing growing support for a so-called Brexit, the chairwoman is certain to field questions during her postmeeting press conference about her view of the risks to the U.S. economy.
Inflation Expectations
Fed officials have grown increasingly wary of a slide in inflation expectations, which they could note in their policy statement Wednesday. Inflation has now undershot the Fed’s 2% goal for four years. If expectations are moving lower, Ms. Yellen said last week, that could raise doubts about whether inflation will rise to 2% as quickly as she expects.
Shifting Dots
The Fed also releases fresh projections Wednesday detailing where officials see the economy and interest rates heading over the next few years. Fed officials are grappling with how high their benchmark federal-funds rate will go, given the apparently low natural rate of interest, the inflation-adjusted rate that balances investment and saving. The so-called dot plot will show how those long-run estimates of the fed-funds rate have shifted since March.
Balance of Risks
It now has been six months since officials have included an assessment in their statement of the balance of risks to the outlook for the U.S. economy. Though officials have acknowledged global risks have receded, they have new worries in the latest jobs numbers. Leaving the language unchanged would suggest officials are still in wait-and-see mode, but want to preserve their options.
Write to Kate Davidson at
kate.davidson@wsj.com