Fed Unlikely to Raise Rates, Adjust Balance Sheet

The Federal Reserve is expected to leave its key interest rate alone Wednesday, and signal it will remain cautious about raising rates further.

When the Fed last met in December, it expected to raise rates twice in 2019, down from its previous projection of three. The key word today is patience.

“What that means is inflation is not a real problem at this point, so they can be patient, continue to look at the jobs numbers, wage numbers, etc., and adjust policy as necessary,” says Pat Shinn , certified financial planner at Heritage Asset Advisors.

Shinn rates will start to rise again after a U.S.-China trade deal is reached.

“That means economic growth is going to pick up again just like it did last summer,” he says. “Then I think in the second half of the year, you'll see the Federal Reserve be worried again about inflation, specifically wage inflation, and begin to star raising interest rates.”

Those would likely come in the third or fourth quarter of 2019.

“Unless things just busted wide open and right this minute, and that's the not the way it looks, you'll probably see a rate hike in September maybe, and rate hike in December, maybe.”

Investors also will be looking for any sign the Fed will change or adjust its balance sheet. The central bank has been allowing $50 billion in bonds to 'roll off' its balance sheet each month in an effort to reduce its $4 trillion of Treasurys and mortgage-backed bonds dating back to the financial crisis.

Right now, the program will last until mid-2020 when the Fed’s balance sheet is cut to around $3.5 trillion from $4 trillion now.



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