Fed, in shift, may move to faster pace of rate hikes

Tue Mar 14, 2017 1:07am EDT
 
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By Ann Saphir and Lindsay Dunsmuir

SAN FRANCISCO/WASHINGTON (Reuters) - The Federal Reserve, which has struggled to stoke inflation since the financial crisis and up until now raised rates less frequently than it and markets expected, may be about to hit the accelerator on rate hikes.

On Wednesday, the U.S. central bank is almost universally expected to raise its benchmark interest rates, a move that just a few weeks ago was viewed by the markets as unlikely.

And with inflation showing signs of perking up, Fed policymakers may signal there could be more than the three rate rises they have forecast for this year.

"They do not have as much room to be patient as they did before," said Tim Duy, an economics professor at the University of Oregon, who expects Fed policymakers to lift their rate forecasts this week.

Policymakers have their eyes on achieving full employment and 2-percent inflation. The faster the economy approaches those goals, Duy said, the quicker the Fed will want to tighten policy to avoid getting behind the curve.

"That's an acceleration in the dots," he said, referring to forecasts published by the Fed that show policymakers' individual rate-hike forecasts as dots on a chart.

The economy already appears closer to its goals than the Fed had expected in December, the last time it released forecasts. The jobless rate, at 4.7 percent, is below what policymakers see as the long-run norm, and inflation, at 1.7 percent, is already in the range they had expected by year end.

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FILE PHOTO - A police officer keeps watch in front of the U.S. Federal Reserve building in Washington, DC, U.S. on October 12, 2016.     REUTERS/Kevin Lamarque//File Photo