No happy dance in the cards as Fed ponders resilient US economy

investing.com:

By Howard Schneider

WASHINGTON (Reuters) — With the Federal Reserve steaming toward another interest rate hike this week, policymakers face a choice over how much weight to put on recent economic data that has made hoped-for outcomes on inflation and unemployment seem more likely while also posing a risk the economy is too strong to keep prices in line.

Since the U.S. central bank's policy meeting in June, inflation has slowed more than expected towards the Fed's 2% target, with many analysts arguing a cycle of moderating price hikes is underway and should continue without further rate increases beyond the quarter-percentage-point hike broadly expected to be announced on Wednesday.

But the sense of optimism in a Fed-orchestrated 'soft landing' — a scenario in which inflation falls, unemployment remains relatively low and a recession is avoided — has also buoyed financial markets in ways that could counter the central bank's aims, something policymakers are likely to guard against with a still-tough inflation-fighting message despite where the data have been pointing.

The Fed «does not want to be head-faked by the recent deceleration in inflation and declare victory too soon,» Diane Swonk, chief economist at KPMG, wrote on Monday, concluding that the central bank will leave its options open for further increases in borrowing costs. «Financial markets have consistently front-run the Fed… That has already eased credit conditions and could stoke an acceleration in growth.»

The rate-setting Federal Open Market Committee is expected to lift its benchmark overnight interest rate to the 5.25%-5.50% range when it releases its latest policy statement at 2 p.m. EDT (1800 GMT) on Wednesday. Fed Chair Jerome Powell will hold a press