Fed begins two-day meeting, result seen too close to call

Wed Sep 16, 2015 4:26pm EDT
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WASHINGTON (Reuters) - The Federal Reserve began a two-day policy meeting on Wednesday with economists evenly split on whether Thursday will see the first official U.S. interest rate rise since 2006.

The decision by the U.S. central bank's Federal Open Market Committee (FOMC) is expected on Thursday at 2 p.m. (1800 GMT).

U.S. economic data are flashing conflicting signals, with unemployment falling but inflation subdued, while slowing growth in China has led to a 40 percent fall in Shanghai stocks .SSEC in three months, leaving global markets on edge.

Global banks and investment funds see the chances for a rate increase as essentially a toss-up, although most experts see a slightly higher probability for no change in monetary policy.

In a Reuters poll of 80 economists, 45 said the Fed would keep its benchmark interest rate between zero and 0.25 percent, while 35 expected a hike.

Among primary dealers, 12 banks expect it to hold steady and the remaining 10 expect a rate increase.

"You can make a strong case either way for the Fed to begin raising interest rates or waiting," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

"The prudent risk management approach would argue for them to hold off, but if the Fed was really data dependent there is a very strong case to raise rates on Thursday."

Based on trading in Chicago Mercantile Exchange fed futures contracts, though, financial markets on Wednesday saw only a 23 percent chance of a rate rise at Thursday's FOMC meeting.   Continued...

A woman walks past the Federal Reserve headquarters in Washington September 16, 2015.  REUTERS/Kevin Lamarque