We’re nearing the end of an eventful year for the Federal Reserve, one marked by a significant change in leadership and unprecedented scrutiny from the Oval Office.
Policymakers will meet one last time before the end of 2018. The decisions they make may have a lasting impact on everyone from consumers to skilled investors.
While the Fed is limited in terms of the actions it can take, there may be room for some surprises when it comes to its economic outlook and the guidance it provides. Here’s what to expect from the central bank when it meets Dec. 18-19 and what’s still up in the air.
What’s (almost) certain – A December rate hike
The Fed is widely expected to raise its benchmark interest rate next Wednesday. This would be the fourth rate hike of 2018 and the ninth one since the central bank started working to bring interest rates back from nearly zero three years ago.
The minutes from the last meeting held by the Fed’s rate-setting arm (the Federal Open Market Committee) indicated that another rate increase in the near future was a strong possibility. Investors are anticipating a December rate hike, too. At the moment, there’s a 72 percent chance that the Fed will raise interest rates by a quarter percentage point, according to the CME Group’s FedWatch tool.
“Most of the market believes that’s pretty much baked in, that that’s going to happen,” says George Rusnak, co-head of global fixed-income strategy for the Wells Fargo Investment Institute. “Honestly, I feel like if they pull back right now it actually might be a little bit more concerning than helpful to the markets.”
What’s certain – Fresh forecasts
In addition to deciding on an increase in the federal funds rate, the Fed will be providing an updated summary of projections for interest rates, economic growth and the labor market. It has new data to pull from, including the latest jobs report.
At its September meeting, policymakers indicated that they’re expecting to raise short-term rates one more time in 2018 and three times in 2019. Inflation is expected to remain around the Fed’s 2 percent target.
Another guarantee is the press conference that will follow the meeting next Wednesday. Normally, the Fed holds just four news conferences per year after its regular policy meetings. But over the summer, Fed chair Jerome Powell, who took the top post in March, said there will be a news conference every time the FOMC meets, starting in January, to improve communication and transparency.
Shrinking bond portfolio
Behind the scenes, the Fed is still unwinding its massive trillion-dollar balance sheet. This process began in October 2017. But the minutes from the November meeting noted that the Fed may need to make adjustments to make sure the Fed’s benchmark interest rate is in the range it’s supposed to be in.inflation
