Federal Reserve officials are set to shift down the pace of interest-rate hikes again in the coming week amid signs of slowing inflation, while Friday’s jobs report may show steady demand for workers that improves the chances of a soft landing for the world’s largest economy.
Policy makers are poised to raise their benchmark federal funds rate by a quarter percentage point on Wednesday, to a range of 4.5 percent to 4.75 percent, dialing back the size of the increase for a second-straight meeting.
The move would follow a slew of recent data suggesting the Fed’s aggressive campaign to slow inflation is working.
“I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed,” Philadelphia Fed President Patrick Harker said in a January 20 speech. “Hikes of 25 basis points will be appropriate going forward.”
Key questions for Fed Chair Jerome Powell at his post-meeting press conference will be how much higher the central bank intends to raise rates, and what officials need to see before pausing.
Fed officials have made clear they also want to see evidence that supply and demand imbalances in the labor market are starting to improve.
Hiring probably slowed in January, according to economists surveyed by Bloomberg, who projected employers added 185,000 jobs compared with 223,000 in December.
They see the unemployment rate ticking up to 3.6%, still near a five-decade low, and expect average hourly earnings rose 4.3% from a year earlier, a slowdown from the prior month, according to their median estimate.
The Fed will get another important read on inflation Tuesday when the Labor Department releases the Employment Cost Index, a broad measure of wages and benefits. Figures on job openings for December are also due Wednesday, as well as a January survey of manufacturers.
Elsewhere, the day after the Fed, the European Central Bank and the Bank of England will each probably raise rates by a half point, after euro-zone data are likely to show slowing inflation and a stagnating economy. Meanwhile, surveys from China might reveal improvement, Brazil’s central bank may keep borrowing costs unchanged, and the International Monetary Fund will publish its latest global economic forecasts.
