The Federal Reserve doesn’t like surprises. Nor does it like to surprise others.
The central bank prides itself as a deliberative, collaborative agency. And it usually moves in unanimity. Investors should not expect anything different in the week ahead as the Fed’s interest rate-setting committee meets on Tuesday and Wednesday.
But don’t mistake such polite consensus for economic clarity or monetary policy precision.
Just four months ago, the Fed itself figured it would raise its targeted borrowing rate twice this year. By March, the central bankers had eliminated any expectations of raising interest rates this year. Why the change? A drop-off in anticipated economic growth.
The Fed has two jobs: keep inflation at bay and have as many people as possible working. As far as the Fed is concerned, it is and will continue to meet both those objectives over the next couple of years. However, the economy itself is expected to slowdown.
Last year was different. The economy sped up, thanks to tax cuts. That helped give the agency license to steadily hike its interest rate — a trend that had been predicted to continue at a slower rate this year. But then the stock market took a dive, the economy slowed, and worries mounted. So the Fed changed its outlook.
Now the major stock indices hover near record highs and economic expectations have turned up again. The Federal Reserve Bank of Atlanta’s real-time GDP estimate predicts the economy grew up more than 2.5 percent in the first quarter. That represents a significant improvement from the prediction of one half of one percent growth just six weeks ago.
The Fed likes to say it is patient and data-dependent when it makes decisions about interest rates. That steady patience doesn’t necessarily lead to clarity. Sometimes it can be a surprise.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM, where he is the vice president of news. Twitter: @HudsonsView