Fed likely to signal rate hike on track despite global woes

Wed Dec 17, 2014 9:22am EST
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By Howard Schneider and Michael Flaherty

WASHINGTON (Reuters) - A sturdy U.S. recovery is expected to trump global economic worries as the Federal Reserve concludes its last policy meeting of 2014 on Wednesday, with officials likely to signal they are still on track to raise interest rates next year.

With oil prices in freefall, Japan in recession and the euro zone sputtering, the Fed for a second consecutive meeting will weigh the U.S. economy's apparent strength against overseas risks that now include a potential currency crisis in oil exporter Russia.

Investors continued looking for safe haven assets in light of Russia's turmoil as Fed officials met for a second day, while fresh data confirmed an expected softening of U.S. inflation.

U.S. consumer prices fell O.3 percent in November, led by the largest decline in gasoline prices since December 2008.

Fed officials have expected a temporary softening of inflation given the big plunge in oil prices, but have indicated signs of strength in the job market elsewhere have left them confident U.S. wages and prices will eventually start to rise.

In addition, the drop in oil prices cuts two ways - threatening economies like Russia that depend on oil exports while providing a boon to consumers. For the United States, lower oil costs are considered an overall plus in the long run, even though they pose an immediate drag on inflation and may trim jobs and investment in the energy industry.

"Russia is going to have absolutely no influence on the Fed whatsoever," said Paul Ashworth, chief U.S. economist for Capital Economics. "The collapse in oil prices is unambiguously good for the U.S. economy."

Attention will focus on just how strongly the Fed voices its faith in U.S. prospects, and in particular whether it drops its longstanding view that it would wait a "considerable time" before raising rates. Most economists expect the phrase to be jettisoned.   Continued...

A detail from the front of the United States Federal Reserve Board building is shown in Washington, in this October 28, 2014 file photo. REUTERS/Gary Cameron/Files