US central bank meets amid expectations of interest rate hike

| Tuesday, December 15, 2015 - 22:57
First Published |
Federal Reserve Bank

Federal Reserve began a two-day crucial meeting

Washington: The US central bank, the Federal Reserve began a two-day crucial meeting on Tuesday amid widespread speculation that it would raise interest rates for the first time in nearly a decade.

The decision to hike rates if it comes as expected on Wednesday would mark the end of a historic effort to lift growth and create jobs since the 2007-2008 financial crisis.

Before the 12-member policy making federal open market committee (FOMC) takes a vote, it will discuss the unemployment situation, inflation and the global economy to determine if the US economy is strong enough for an interest-rate hike, analysts said.

Persistently low inflation has been a big reason the Fed hasn't yet lifted its benchmark rate despite strong job growth and near-normal unemployment of 5 percent, said a media report.

Low oil prices and a strong dollar, which makes imports cheap for US consumers, have tamed consumer prices, but Fed officials expect those effects to fade.

Yet even core inflation, which strips out volatile food and energy costs, has hovered below the central bank's annual 2 percent target, it pointed out.

Fed policymakers have signalled they are likely to raise their benchmark rate by a quarter of a percentage point from the current near-zero level, according to the report.

With inflation still low and the global economy still shaky, officials will likely reiterate that rate increases will be gradual, it suggested.

Citing the central bank's October meeting, the Washington Post put the odds that the Fed will vote on Wednesday to raise rates as topping 80 percent.

The Fed has repeatedly pushed back the goal post since slashing its target rate to zero during the financial crisis.

"First it promised to stay at zero at least until 2012," it noted.

"Then 2013. Then mid-2015. Then until the jobless rate fell to 6.5 percent or inflation rose above 2.5 percent,” it said.

Finally, Fed officials hinted last month that the rate hike could come on Wednesday.

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