The first Federal Reserve monetary policy meeting chaired by Janet Yellen will reduce the Fed’s monthly pace of asset purchases by another $10 billion, economists project.
During the two-day meeting that concludes March 19, Yellen may also engineer a change in how the Fed guides markets on possible changes in interest rates -- away from numerical goals for employment and inflation and toward less-specific signals.
The Fed meeting, and Yellen’s press conference at its conclusion, is the highlight of a relatively light week on the global economic calendar.
Elsewhere, central banks in Switzerland and Mexico will probably hold the line on borrowing costs. In the U.K., a midweek report is forecast to show the unemployment rate held at 7.2 percent.
-- Members of the Federal Open Market Committee meeting March 18-19 will reduce monthly purchases of Treasuries and mortgage-backed securities by a combined $10 billion to $55 billion, according to the median forecast in a Bloomberg survey of economists. Of particular interest to investors will be whether the Fed moves away from numerical thresholds and toward qualitative guidance on the conditions that would prompt the Fed to increase its benchmark interest rate above zero, where it has been since December 2008. Yellen told lawmakers on Feb. 27 that the Fed is moving in that direction now that unemployment is close to the central bank’s 6.5 percent marker. The rate was at 6.7 percent in February.
-- “We believe Ms. Yellen would support dropping the numerical 6.5 percent unemployment forward-guidance threshold, and replacing it with a broader range of employment indicators that describe labor-market slack and the Fed’s progress towards meeting its employment mandate,” Michael Carey, chief economist at Credit Agricole in New York, wrote in a weekly research note.
-- A change to qualitative guidance “still points to a ‘low for longer’ fed-funds policy stance,” Kevin Logan, chief U.S. economist at HSBC Securities USA Inc. in New York, wrote in a note. “There is a possibility that forward guidance from a low fed funds rate could be strengthened with a statement about ‘gradual’ changes” in the rate after the first increase takes place.
-- Britain’s jobless rate probably held at 7.2 percent in the three months through January, above the 7 percent threshold Bank of England Governor Mark Carney has set as the level to begin considering interest-rate increases. Even when the threshold is reached, he’s given himself breathing room by saying there’s scope to wait past that point to absorb spare capacity before tightening. The data are due March 19, the same time the BOE publishes the minutes of the Monetary Policy Committee’s meeting earlier this month.
-- “The MPC is not taking the recovery for granted and wants to see it become more balanced, with business investment seeing sustained improvement and exports increasingly kicking in,” said Howard Archer, an economist at IHS Global Insight in London. “Extended low interest rates will hopefully facilitate this process.”
-- Chancellor of the Exchequer George Osborne will take to the floor of Parliament the same day to lay out his spending and tax plans for the coming fiscal year. With the economy recovering, he can use the stronger growth to rebuff opposition calls for him to rethink his fiscal squeeze as he looks ahead to the general election in 2015.
-- “The U.K.’s fiscal position remains poor in absolute terms, but there appears to be sufficient progress in reducing the deficit to prevent any adverse market reaction,” said Ross Walker, senior economist at Royal Bank of Scotland Group Plc in London. “Political risk remains, but it is more likely to surface closer to -- and beyond -- the 2015 election.”
SWISS NATIONAL BANK
-- The Swiss National Bank’s three-member governing board will announce March 20 its latest policy decision. It will leave the benchmark interest rate at zero and maintain its cap on the franc, according to a Bloomberg survey of economists. The cap, introduced in 2011 to keep the franc from strengthening and to guard against deflation, will remain in place for some time, another poll shows.
-- “Our official forecasts go until end 2015,” said Reto Huenerwadel, senior economist at UBS AG in Zurich. “We are not looking for a change in the franc cap until then.”
MEXICAN INTEREST RATES
-- Mexico’s central bank on March 21 probably will keep its benchmark interest rate unchanged for the third straight meeting, leaving it at 3.5 percent as policy makers confront above-target inflation and a slowdown in economic growth last quarter.
-- “The board will decide to remain on hold, but highlighting that the economy remains weak,” Marco Oviedo, Barclays Plc’s chief Mexico economist, said in an e-mailed response to questions. “I expect a very dovish tone” in the statement accompanying the decision.
-- The central bank “will probably soften its hawkish rhetoric adopted back at its January meeting,” Gabriel Casillas, the chief economist and head of research at Mexico City-based Grupo Financiero Banorte SAB, said in an e-mailed response to questions. “The economic deceleration that characterized 2013 seems to be extending into the first quarter.” Banorte forecasts “an indefinite pause” in changes to the overnight rate, he said.
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