Fed to shed light on depth of global growth concerns

Fri Jan 22, 2016 10:12am EST
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By Sarah White

MADRID (Reuters) - For more clues as to how slumping oil prices and a faltering Chinese outlook could sway policymakers in the coming months, look no further than January's meeting of U.S. Federal Reserve rate setters.

Concerns over weaker global growth are casting doubt on the pace at which the U.S. central bank will continue hiking interest rates, after December's first rise in nearly a decade.

Expectations for a March rate increase are already starting to fade, and economists polled by Reuters now forecast three hikes in 2016 rather than the four initially floated by the Fed.

Against a backdrop of volatile trading in global stocks, Fed officials have shrugged off in recent weeks the impact of financial market swings on their decisions.

The Fed is widely expected to leave its federal funds rate unchanged at 0.25-0.50 percent when policymakers conclude their meeting on Jan. 27. But falling inflation assumptions, coupled with the market turbulence, could lead them to signal deepening concern over the U.S. and world economic outlooks.

"If the statement acknowledges increased risks without mention of expected resilience in the medium-term outlook, this would be a dovish sign," analysts at BNP Paribas said in a note.

U.S. data paints a more subdued domestic picture, too, as a strong dollar buffets the economy. Consumer prices unexpectedly fell in December.

Recent weak reports on retail sales, housing starts and industrial production suggest a slowdown in activity at the end of last year, as did a six-month high in U.S. jobless claims reached in mid-January.   Continued...

U.S. Federal Reserve Chairman Janet Yellen holds a news conference to announce raised interest rates in Washington December 16, 2015.  REUTERS/Jonathan Ernst