Federal Reserve chair Jerome Powell.Carolyn Kaster
Federal Open Market Committee meetings always attract plenty of attention, but the scrutiny this week will be even more intense than usual.
Jerome Powell, who took over from Janet Yellen as head of the U.S. Federal Reserve in February, will oversee his first FOMC meeting and press conference as chairman. The two-day meeting concludes on Wednesday and includes a quarterly summary of economic projections.
Adding to the meeting's significance, the Fed is widely expected to hike its policy rate by 25 basis points, which would bring its target for the federal-funds rate to a range of 1.5 per cent to 1.75 per cent, marking the sixth increase since it began tightening in December, 2015.
Futures markets point to two more increases during the year, with roughly a 33-per-cent chance of a fourth hike in December. Rate expectations could change, however, depending on the language of the FOMC statement and the nature of Mr. Powell's comments.
With the strengthening U.S.economy stoking worries about inflation, economists will be looking for any signs of a more aggressive stance from the Fed.
"After [the Federal Reserve] delivered on its promises in 2017, which included hiking its target range a total of three times and initiating balance sheet reduction, we expect the new chair to move seamlessly into the role by keeping the status quo [on the rate outlook] – but with a hawkish tilt," Ellen Zentner, chief economist at Morgan Stanley, said in a note to clients.
The note, quoted by CNBC, also indicated that the Fed under Mr. Powell could move toward holding press conferences after each of its eight meetings during the year, rather than just after its quarterly meetings. This would give the central bank more flexibility to raise rates when it sees fit, as it typically announces increases only when it has a press conference scheduled where it can elaborate on the reasons for its policy decisions.
As for the summary of economic projections (SEP), the forecasts will likely "all be upgraded owing to the Tax Cuts and Jobs Act … and the Bipartisan Budget Act," Michael Gregory, deputy chief economist with the Bank of Montreal, said in a note.
For the fed funds rate, in particular, Mr. Gregory expects the SEP will show a median projection of four rate hikes this year and at least two more in 2019. That would raise the target range to 2.75 per cent to 3 per cent by the end of next year.
"Finally, we'll get Chairman Powell's inaugural post-meeting presser in which we suspect, now having chaired his first policy meeting, he will sound at least a little more authoritative than he did during his recent congressional testimony," Mr. Gregory said.
In Canada, the main economic event is Friday's release of inflation data for February.
"Headline inflation likely popped its head back above the Bank of Canada's 2-per-cent target, but don't expect that to move the needle on the monetary policy outlook," Royce Mendes, senior economist with Canadian Imperial Bank of Commerce, said in a note.
"The less volatile core common component measure of inflation should remain at 1.8 per cent, suggesting that price pressures remain well contained."
Headline inflation probably won't accelerate meaningfully until later this year, which will allow Bank of Canada Governor Stephen Poloz to hold off on rate hikes for now, he said.
Also on Friday, Statistics Canada is scheduled to release retail sales figures for January. CIBC expects sales to rise 1.6 per cent from December, lifted by a jump in auto sales and higher gasoline prices. The consensus forecasts calls for retail sales to rise 1.3 per cent.
John Heinzl