WASHINGTON: The US central bank on Wednesday (Dec 13) was poised to raise the benchmark interest rate for the third and final time this year, meaning the focus will now shift to the policy plans for next year.
The widely expected move will come as inflation begins to show some flickers of life - including in a report on consumer prices released earlier Wednesday - but not enough to settle the disagreements among Federal Reserve officials about the near-term threat posed by rising prices.
Fed Chair Janet Yellen was due to hold a press conference after the two-day meeting, which analysts will watch closely for signals about the likely pace of interest rate increases next year.
Stocks rose in early trading ahead of the decision, with the Dow and S&P 500 gaining 0.2 per cent above their record levels on Tuesday, while the tech-rich Nasdaq gained 0.4 per cent.
The Fed's policy-setting Federal Open Market Committee got one more inflation measure to contemplate before making their final decision, which showed the annual rate for the closely-watched Consumer Price Index edged above the central bank's two percent target in November.
However, rising gasoline prices were the main culprit, as was the case with the Producer Price Index released on Tuesday, and other areas of the data showed inflation pressures may be weakening.
"After yesterday's PPI, inflation concerns were more elevated heading into the CPI report but this report did not validate those concerns," RDQ Economics said in its data analysis, noting that the core rate, which excludes volatile energy and food prices, "continued to be stuck in a rut."
And the Fed's preferred inflation measure, the Personal Consumption Expenditures price index, remains well below two percent and shows few signs it will rise soon. The 12-month core PCE is just 1.4 per cent.
Yellen has acknowledged that central bankers are somewhat baffled by the absence of inflation, largely attributing it to transitory factors, as economic growth and falling unemployment have failed to push prices higher.
The CPI report "will keep alive the debate over how much upward pressure on inflation is likely from the tight and tightening labor market," said Jim O'Sullivan of High Frequency Economics.
Some on the Fed have argued for faster rate increases to ensure they head off any inflation in the pipeline, but economists say they won't get much help from the latest data.
"The report is certainly not weak enough to stop the Fed from tightening today, but it could result in the tone of the statement being slightly less hawkish than it would have been with a consensus-like reading," O'Sullivan said.
Analysts also will be focusing on the Fed's quarterly economic forecasts to see how much sentiment among the central bankers has shifted. The September forecasts called for three rate hikes in 2018.
The Fed debate occurs as Republican lawmakers on Capitol Hill work towards moving a massive tax cut plan over the finish line, which could boost the economy and fuel inflation.
Some economists say a near-term boost from the tax plan could cause the Fed to raise rates more quickly, but they note that central bankers may wait until a final version is approved before adjusting their forecasts.
This will be Yellen's last press conference as President Donald Trump opted to replace her when her term ends in early February. She will preside over one more FOMC meeting in January.