Forecast for Fed's new forecasts - still one more rate hike to go
By Ann Saphir
(Reuters) — Faster growth, cooler inflation and a job market that won't quit have set the stage for an updated batch of forecasts from Federal Reserve officials next week likely to reflect their growing faith in prospects for an economic soft-landing.
What they likely won't be changing: Keeping one more rate hike on the table.
Not that most economists necessarily believe they will go through with it.
«A lot of it is signaling, and risk management,» says Deutsche Bank economist Matthew Luzzetti.
With most of the financial and economics world having concluded the U.S. central bank will leave short-term interest rates in the current 5.25%-5.50% range at the close of its Sept. 19-20 meeting, the main unknown is how policymakers reshape their stale forecasts from three months back.
Economic data since their June 13-14 meeting has persistently surprised to the upside, meaning Fed officials will need to rip up those outlooks that saw moribund growth, notably rising unemployment and only modest improvement in inflation.
Given that rosier picture, Luzzetti — like most analysts polled by Reuters — says Fed policymakers probably won't lift the policy rate any further. They just are not ready to say so.
«If they declare the cycle done from a tightening perspective, that would likely lead to a significant easing of financial conditions – which I don’t think they want to deliver,» he said.
Easier financial conditions — meaning higher stock prices or lower bond yields, for instance — could stimulate spending and borrowing and trigger more of the very inflation the Fed is trying to beat.
Plus, Luzzetti points out, progress on inflation could stall out as the year rolls on, making a rate hike to tamp down on resurgent
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