Three things to watch for from the Federal Reserve today

Associated Press

WASHINGTON

The Federal Reserve is likely – if not certain – to leave interest rates alone when its latest policy meeting ends today. But expectations are high that the Fed and its chairman, Jerome Powell, will signal that a rate cut may come soon for the first time in more than a decade.

Behind the Fed’s thinking is concern about possible economic harm resulting from the Trump administration’s trade war with China and signs that the global economy is weakening. Two weeks ago, Powell said in a speech that the Fed was monitoring the administration’s aggressive use of tariffs and would “act as appropriate to sustain the expansion.”

Investors were cheered by the notion that this meant at least one rate cut might be on the way. What remains unknown is just when – or even whether – the Fed will reduce its key short-term rate.

The Fed’s two-day meeting will end this afternoon. When it does, the Fed will issue a policy statement and update its economic and interest-rate projections before Powell has a news conference. Here are three things to watch for:

The Fed has been saying in its policy statements since January that it will be “patient” in adjusting its key short-term rate. This rate influences many consumer and business loans, from credit cards to home-equity credit lines to small-business loans.

That single word helped calm fears that had surfaced after the Fed raised rates four times in 2018 and signaled that further hikes were likely this year. The financial markets were spooked by the prospect that the Fed would end up going too far to tighten credit, thereby undercutting the economy and perhaps triggering a recession.

In pledging to safeguard the economic expansion, which is about to become the longest on record, Powell said the Fed was monitoring trade and other developments that could imperil the economy. He noted that “we do not know how or when these issues will be resolved.”

You can expect Powell to be asked for his views on the state of the economy. Most analysts say they think growth, as measured by the gross domestic product, has slowed sharply in the current April-June quarter to around a 1.5 percent annual rate, only about half the pace of the past year.

The Fed will today update its forecast for GDP. When it last did so in March, it envisioned 2.1 percent GDP growth this year and 1.9 percent in 2019. That’s far below the projections of the Trump administration, which is forecasting that growth will remain above 3 percent annually as the 2020 election nears.