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April 26, 2016 at 02:03 PM
(Bloomberg View) — Here are three things to know about Wednesday’s meeting of the Federal Open Market Committee, the Federal Reserve’s closely watched policy-making body.
1. Fed officials are likely to set the stage for a possible interest rate hike at their next meeting, in June. They mainly will be motivated by three factors: a further strengthening in labor market conditions that also improves the outlook for wage growth; the recent significant easing in financial conditions, including easier access to borrowing for corporate and mortgage financing; and, more generally, the central bank’s eagerness to continue the process of careful monetary-policy normalization after so many years of experimentation.
Nonetheless, the Fed will not close off any policy options at this point. Officials will make clear that their decisions, including whether to raise rates in June, remain “data dependent.” As a result, they will signal that a June hike is not a certainty, but only has evolved from less likely to more likely.
2. Such a conditional policy stance on the part of the Fed is less dependent on the domestic context than it is on events in the rest of the world — such as economic slowing, as well as non-economic uncertainties, including the U.K. referendum on exiting from the European Union scheduled for June 23. The “old” Fed — an institution that was both more domestically oriented and willing to lead markets — would decide to raise rates at this meeting. In fact, some officials (but not the majority) might already be amenable to doing so on Wednesday.
