Federal Reserve opens Yellen's final meeting; no rate hike seen

[WASHINGTON] The US central bank on Tuesday opened its first meeting of 2018, the last of Janet Yellen's tenure as chair, with markets expecting policymakers to leave interest rates unchanged.

After raising rates three times in 2017, the Federal Reserve expects to tighten interest rates in three more increments this year, hoping to get out in front of inflation as global economies are seeing simultaneous growth.

But investors expect the Fed will hold off until its next meeting in March to make the opening move on the rate that affects all forms of business and consumer lending, waiting to see firmer signs that inflation is beginning to pick up.

The most recent numbers show inflation remains tame, below the Fed's two-per cent target despite falling unemployment, but some economists expect price pressures to mount in the first half of 2018, especially amid growing competition to find workers.

And annual measures of inflation could begin to rise in the spring after soft prices for consumer goods and services seen in 2017 drop out of the calculations.

A falling dollar, rising energy prices, possible new trade barriers and the massive corporate tax cuts approved last month also could give life to inflation after years in which it was surprisingly low.

"There won't be any surprises at this meeting," Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, told AFP. "They'll say goodbye to Janet Yellen."

Ms Yellen, the first woman to lead the Fed, officially steps when her term as chair expires on Saturday.

She leaves with the US economic recovery in full swing amid low inflation, steady job growth and asset prices repeatedly smashing records - a performance that won her plaudits from Wall Street and the White House.

But in choosing to replace Ms Yellen with current Fed Governor Jerome Powell, President Donald Trump became the first president in almost 40 years not to retain the sitting chair of the central bank after taking office.

Unlike Ms Yellen, Mr Powell is a Republican seen as more amenable to Mr Trump's deregulation agenda.

Diane Swonk, chief economist at Grant Thornton, told AFP the environment for the Fed may be more challenging than the calm waters Ms Yellen leaves behind, with the Fed unnerved by the possibility of asset bubbles.

"So far, Chair Yellen gets to leave without leaving a ripple on financial markets," Swonk said.

AFP