Fed rate moves for 2019: The suspense is building
/ AP
WASHINGTON – Having raised interest rates with steady regularity in recent months, the Federal Reserve may embrace a new message this week: Flexibility.
On Wednesday, the Fed is set to announce its fourth rate hike of the year. But after this week, no one is sure what it will do. Neither, most likely, is the Fed itself.
A confluence of factors — a global slowdown, a U.S.-China trade war, still-mild inflation, stomach-churning drops in stock prices — may have left Fed officials weighing a shift in policy. Many analysts think the central bank will signal Wednesday that it's considering whether to slow or suspend its rate hikes in 2019 to avoid weakening the economy too much. And some predict that the rate increases, which began three years ago, will end altogether next year.
Wall Street plunged again on Monday, pushing stocks to their lowest levels in more than a year. The Dow Jones industrial average fell 507 points after a 496-point drop on Friday as investors appeared to be losing confidence in the U.S. economy's growth prospects as global growth has shown more signs of weakness.
Only two rate hikes next year?
In September, Fed officials collectively forecast that they would raise rates three times in 2019. But this week, analysts think the central bank could indicate that no more than two rate hikes are likely next year.
Yet the overarching message — in a statement after its latest policy meeting, in updated forecasts for the economy and interest rates and in a news conference by Chairman Jerome Powell — may be that the Fed plans to suit its rate policy to the latest economic data. In Fed parlance, it will be "data-dependent."
The idea, some analysts say, is that the Fed may want to pause in its credit-tightening to assess how the economy fares in the coming months in light of the headwinds it faces. Contributing to this view was a speech Powell gave last month in which he suggested that rates appear to be just below the level the Fed calls "neutral," where they're believed to neither stimulate growth nor impede it. Powell's observation suggested that the Fed might be poised to soon slow or halt its rate hikes.
For now, most U.S. economic barometers are still showing strength. The unemployment rate is 3.7 percent, a 49-year low. The economy is thought to have grown close to 3 percent this year, its best performance in more than a decade. Consumers, the fuel for the economy, are spending freely.
Risks are rising
In such an environment, the Fed would normally keep gradually raising rates to make sure growth doesn't overheat and ignite inflation. But this time, risks to the economy appear to be rising. From China to Europe, major economies are weakening. President Donald Trump's trade conflict with Beijing could, over time, undermine the world's two largest economies.
Many also fear that the brisk pace of U.S. growth this year reflected something of a sugar high, with the economy artificially pumped up by tax cuts and a boost in government spending. The benefit of that stimulus will likely fade in 2019, slowing growth to a more modest pace.
"Uncertainties about how the economy will perform next year have ballooned," said Sung Won Sohn, chief economist at SS Economics. "I think 2019 could be a difficult year for the Fed."
Sohn is forecasting that after nearly 3 percent expansion this year, the economy will grow closer to a middling 2 percent in 2019. As a result, like many economists, he predicts that the Fed will raise rates only twice next year.
David Jones, an economist and author of several books on the Fed, goes further: He foresees just one rate increase in 2019.
"The Fed is going to be much more cautious about rate hikes next year as the economy slows significantly," Jones said. "The Fed will truly be data dependent as economic forecasting gets much murkier."
The case for three 2019 hikes
Mark Zandi, chief economist at Moody's Analytics, is more hopeful about growth in 2019 because he thinks the stimulus from tax cuts and government spending increases won't yet fade significantly. As a result, Zandi doesn't expect the Fed to slow its credit tightening much next year. But by 2020, Zandi foresees a sharp drop in economic momentum and a rising risk of a recession.
"While the Fed will probably signal this week that they only expect two rate hikes next year, I think their forecast will be wrong and they will end up raising rates three times," Zandi said. "I think the economy will remain strong enough that unemployment will fall further and wage pressures will rise."
Lawrence White, an economics professor at New York University's Stern School, said he expects the Fed to remain mindful of the mistakes of the 1970s, when officials allowed inflation to erupt, requiring sharply higher interest rates and a painful recession to root out.
"We have not had such low unemployment in almost 50 years," White said. "The Fed has to be cautious."
Presidential threats
Economists appear unified, though, in the view that whatever the Fed does, it won't be influenced by the attacks Mr. Trump has made on the central bank and on Powell personally since the stock market began tumbling this fall. In a highly unusual move for a president, Mr. Trump has publicly called the Fed and its string of rate hikes this year "my biggest threat."
On Monday, the president reiterated his view via Twitter. "It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us," Mr. Trump tweeted, "the Fed is even considering yet another interest rate hike."
Powell, who was the president's hand-picked choice to be chairman, has stressed that the Fed will pursue its mandate of managing rates to maximize employment and stabilize prices, regardless of any outside criticism.
"This is a Fed that has gone through some pretty heavy criticism during the financial crisis, and they kept doing what they needed to do," said Diane Swonk, chief economist at Grant Thornton. "At this stage of the game, the president's criticism is just noise."
First published on December 18, 2018
© 2018 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.
Fed rate moves for 2019: The suspense is building
With one more hike likely this week, the betting on what happens next year has plenty of wild cards in play
updated 1M ago 
Teen caught on video attacking another, wearing hijab, in school
Authorities in suburban Pittsburgh say they deem the bathroom incident bullying, not hate crime for now
updated 15M ago 
How does federal judges' health insurance stack up?
With a federal court ruling that Obamacare is unconstitutional, here's a look at the kind of health coverage judges get
1H ago 
How I tried and failed to quit Google
Technology experts explain why attempting to stop using one of the world's largest tech companies is so difficult – and possibly futile
updated 12M ago 
Two Chicago police officers killed by train
Police said the officers were investigating a call of shots fired when they were hit by the passing train
3H ago 
Wall Street, Congress react to federal judge ruling Obamacare unconstitutional
Health care stocks tumbled after the Friday ruling as more than a dozen states vowed to appeal
13H ago 
Mueller releases memo on Flynn's interview with Peter Strzok
Last week Mueller submitted to the court material regarding Flynn's questioning by the FBI
1H ago 
Three-quarters of CEOs have apologized for Trump
A Yale survey of business leaders finds them full of pessimism and making explanations to international partners
14H ago 
Cuomo cites marijuana legalization in speech laying out priorities
Cuomo says the legalization of recreational marijuana and fixing New York City's subway system are among his top priorities for his third term
15H ago 
What's on White House holiday wish list?
"Where Did You Get This Number?" podcast host Anthony Salvanto explores Beltway wish lists and digs into how NORAD tracks Santa
15H ago 
U.K. neo-Nazi couple, 4 more jailed for belonging to banned group
All 6 found guilty of membership in National Action, a group banned under anti-terror laws for advocating "overthrow of democracy" by violence
updated 17M ago 
Ross from "Friends" lookalike faces arrest for skipping court
Abdulah Husseni, who looks an awful lot like David Schwimmer, was facing theft and fraud charges, now there's a warrant out for his arrest
updated 57M ago 
Yemen truce off to rocky start, but calm prevails on day 1
Ceasefire in port city of Hodeida – a vital port for the flow of desperately needed humanitarian aid – appears to hold after a violent start
3H ago 
Resorts in Jamaica covered up sexual assaults, report says
Investigation shows a number of popular resort destinations in Jamaica have paid victims to stay silent and says an estimated one American is raped a month there
8H ago 
Here's how long it could take for women to earn as much as men
Progress in closing the "gender gap" in pay and other key metrics has stalled, World Economic Forum finds
8H ago 
Alfonso Ribeiro sues Fortnite over alleged use of "Carlton dance"
At around $5 per dance it's earned the game creators hundreds of millions of dollars
updated 7M ago 
Ray Rice says he doesn't want a 2nd chance — he already got one
In February 2014, surveillance video showed the former Baltimore Ravens running back punching his fiancee in an elevator
updated 1M ago 
Kurt Russell, Goldie Hawn share Christmas photo
Hawn posted the picture on Instagram and wrote, "Never thought I'd be sleeping with Santa!"
14H ago 
"The Dark Crystal" prequel reveals first look
Taron Egerton, Anya Taylor-Joy and Nathalie Emmanuel lead the voice cast
15H ago 
Yael Stone accuses Geoffrey Rush of sexual misconduct
Stone said in a New York Times interview that she initially "swore I would never come forward"
16H ago 
How I tried and failed to quit Google
Technology experts explain why attempting to stop using one of the world's largest tech companies is so difficult – and possibly futile
updated 12M ago 
New reports detail sophistication of Russian influence efforts in U.S.
Two new analyses this week portray a sprawling, multifaceted operation affecting millions of users in the U.S. and persisting long after the 2016 presidential election
17H ago 
Google to spend $1B on major New York City expansion
The 1.7 million square-foot campus will help the tech giant double its New York City staff within a decade
13H ago 
First of new fleet of GPS satellites set for launch
New generation is designed to be more secure and accurate but many new features won't be available until 2022 or later
Dec 17 
Colin Kroll, HQ Trivia and Vine co-founder, dies at 34
Colin Kroll, the CEO and co-founder of the popular HQ Trivia app, has died, the company said Sunday
Dec 16 
How does federal judges' health insurance stack up?
With a federal court ruling that Obamacare is unconstitutional, here's a look at the kind of health coverage judges get
1H ago 
Child abuse rises on day after Friday report cards, study shows
But no such trend noted on other days of week, and researchers could only speculate about the reason for the increases
3H ago 
3 who got Legionnaire's disease in Wisconsin hospital die
University of Wisconsin Hospital says 10 others recovered and were released; blames outbreak on since-flushed hot water system
4H ago 
David Begnaud on seeking "acceptance" for Tourette's
The CBS News correspondent recently revealed that he struggled with debilitating Tourette syndrome as a child
12H ago
Cuomo cites marijuana legalization in speech laying out priorities
Cuomo says the legalization of recreational marijuana and fixing New York City's subway system are among his top priorities for his third term
15H ago 
Fed rate moves for 2019: The suspense is building
With one more hike likely this week, the betting on what happens next year has plenty of wild cards in play
updated 1M ago
How does federal judges' health insurance stack up?
With a federal court ruling that Obamacare is unconstitutional, here's a look at the kind of health coverage judges get
1H ago
How I tried and failed to quit Google
Technology experts explain why attempting to stop using one of the world's largest tech companies is so difficult – and possibly futile
updated 12M ago
Here's how long it could take for women to earn as much as men
Progress in closing the "gender gap" in pay and other key metrics has stalled, World Economic Forum finds
8H ago
Wall Street, Congress react to federal judge ruling Obamacare unconstitutional
Health care stocks tumbled after the Friday ruling as more than a dozen states vowed to appeal
13H ago 
Teen caught on video attacking another, wearing hijab, in school
Authorities in suburban Pittsburgh say they deem the bathroom incident bullying, not hate crime for now
updated 15M ago
Two Chicago police officers killed by train
Police said the officers were investigating a call of shots fired when they were hit by the passing train
3H ago 
Statue of Liberty climber convicted in July 4 protest
Therese Okoumou testified she climbed the base of the statue to protest separation of families at the U.S-Mexico border
14H ago 
Mother in viral video where NYPD take toddler speaks out
"I was so afraid. I was combative with my thoughts … I just remember being talked to very viciously," Jazmine Headley said Sunday
Dec 16 
Patient hijacks ambulance in Southern California
Incident started in Lake Elsinore and headed north on Interstate 15 until it finally came to an end in Hesperia
Dec 16
