The U.S. central bank is expected to leave interest rates unchanged at its September 19-20 policy meeting, according to a Reuters poll of almost 100 economists, with markets pricing in a 52 percent chance of a rate hike coming at a December meeting.
FED WATCH: Investors are looking ahead to this week's Fed policy meeting for indications on the timing of the next rate hike and when the Fed might start shrinking its multitrillion-dollar stockpile of bonds.
Fed officials are widely expected to leave rates unchanged as they announce a start date for the gradual unwinding of the United States central bank's $4.5 trillion balance sheet.
"The start to reducing the Fed's balance sheet is an action the markets are ready for", said Diane Swonk, chief economist at DS Economics. "Ideally it could reach interest rates of at least 2% by the middle of next year, up from 1.25% today".
"I think from time to time, we could get a significant amount of instability just because the bond sales are going to go on for so many years", said David Jones, author of a number of books on the Fed.
Referring to the Fed's projection of member's expectations of future interest rates, illustrated in a dot plot diagram on the Fed's website, where dots represent each of the 16 voting and non-voting Fed member's projections of future interest rates, he suggests the main clusters of dots - or median expectation - may drop.
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"This implies that in the absence of inflation, there may be little need for additional Fed rate hikes to tighten financial conditions", says Patel.
"The markets would not that", he continued, adding the the recent hurricanes make it hard for investors and bankers to judge the strength of the economy and inflation. Interest rates have remained at rock bottom since they were lowered to stimulate investment after the 2008 recession, and the Federal Reserve is desperate to wean the economy off of cheap credit. Over the years, it has worked well enough to help cut the unemployment rate to its current low of 4.4 percent.
According to the CME Group's FedWatch tool, investors now see a 56 percent chance of a rate increase by the end of December.
ANALYST'S TAKE: "On the political front, no prizes for guessing that North Korea will top the agenda of President Trump's address to the gathering of world leaders at the U.N.", Rob Carnell of ING said in a report. Clues to the answer might come in the policy statement the Fed will issue, in its updated economic forecasts or in the news conference Chair Janet Yellen will hold.
Yellen has politely dodged questions about whether she would stay for a second term, if renominated. He said of the Fed chair last week, "I like her, and I respect her".
The pound meanwhile continued to shine against the dollar after the Bank of England indicated last week that it would probably tighten monetary policy itself very soon.
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