US Fed meets as markets await rate cut

Fed Chairman Jerome Powell has said the central bank will "act as appropriate" to sustain GDP growth (AFP Photo/ANDREW CABALLERO-REYNOLDS)

Washington (AFP) - US central bankers opened their hotly-anticipated policy meeting on Tuesday, with investors expecting the Federal Reserve to cut interest rates for the second time this year.

Wall Street was cautious early Tuesday, with stocks in a holding pattern ahead of the announcement, and financial markets jittery amid the announcement the New York Federal Reserve Bank is intervening to try to keep the policy rate in line.

Fed Chairman Jerome Powell in recent weeks has sent strong signals that a rate cut is coming, vowing that policymakers stand ready to "act as appropriate" amid "significant risks" to the economy -- notably President Donald Trump's trade wars.

The Fed cut the key policy rate in July for the first time in more than a decade, after four rate hikes last year, putting the range at 2.0 to 2.25 percent.

But economic data in recent weeks have complicated the picture, showing firming inflation along with rising wages and consumer spending, prompting some to say fears for the world's largest economy may be overdone.

The spike in oil prices Monday following attacks on Saudi oil facilities also revived fears for Middle East stability, which might temporarily help reverse recent declines in energy costs and spark an uptick in inflation.

The odds of a third cut by December are now about even, according to CME Group numbers, showing investors are now much less confident the Fed is embarking on a cycle of rate cuts.

That would surely enrage Trump, who resumed tweeting about the Fed on Monday.

"And now, on top of it all, the Oil hit," Trump said. "Big Interest Rate Drop. Stimulus!"

Oxford Economics estimates the Fed will cut three more times this year, leaving the Fed's benchmark lending rate a full percentage point lower at the end of the year, erasing all of the 2018 rate hikes.

"We think that the Fed will want to take out a certain degree of insurance easing, or a mid-cycle adjustment as Chair Powell has called it more recently," Kathy Bostjancic, Oxford's chief US financial economist, told AFP.