Fed in focus as investors seek reassurance

Sun Jun 15, 2014 2:13pm EDT
 
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By Paul Day

MADRID (Reuters) - Investors will look to the Federal Reserve for reassurance in the coming week, with little economic data to assuage their concerns over the strength of the global recovery, amid signs Iraq may be sliding into civil war.

The Fed, which wraps up a policy meeting on Wednesday, is expected to keep steadily reducing its massive bond-buying stimulus by $10 billion per month.

Financial markets will be listening out for any hints on when the U.S. central bank might begin raising interest rates.

"The Federal Reserve is preparing to move to the second step of the monetary policy exit. With the tapering of asset purchases virtually on auto pilot – QE3 is projected to end in late summer or early autumn – the focus is gradually shifting towards actual rate hikes," Unicredit said in an investor note.

It said the notion that U.S. monetary policy has reached a turning point could be strengthened if the Fed policymakers' median rate forecast for the end of 2016 stays at 2.25 percent, where it stood in March, up from 1.75 percent in December.

The matrix of dots for when each rate-setter expects policy to begin tightening - and how quickly - will be keenly scrutinised, as will any comments about rate hikes or slack in the economy from Fed Chair Janet Yellen, who speaks after the results of the meeting are released.

While the world's largest economy got off to a weaker than expected start this year, many analysts believe the underlying trend for growth remains solid.

Global stocks are likely to stay on the back foot due to concerns over a growing radical Islamist insurgency in Iraq. U.S. President Barack Obama said he didn't rule out air strikes to help Iraq counter the insurgency, but later said he needed several days to determine how the United States would react.   Continued...

 
A general view of the U.S. Federal Reserve building in Washington, July 31, 2013. REUTERS/Jonathan Ernst