Fed faces red flags to rate hike

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WASHINGTON, D.C.: The Federal Reserve taxis toward a liftoff this year in interest rates in a meeting that begins on Tuesday (Wednesday in Manila), with signs of weakness in the US economy raising questions about timing.

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The Fed is expected to stay the course on monetary policy in its statement Wednesday and stress patience in waiting to see whether the economy is strong enough to withstand the first increase in the federal funds rate since 2006.

Since the December meeting of the Federal Open Market Committee (FOMC), the central bank’s policy arm, the rapid slide in oil prices has pulled already weak inflation lower, corporate earnings season has gotten off to a bumpy start, and the nearly stagnant eurozone has been further roiled by Greece’s overwhelming vote Sunday for a leftist, anti-austerity party.

The European Central Bank’s announcement last week of a massive bond-purchase program, or quantitative easing, to stimulate growth and avert deflation in the 19-nation eurozone was expected to at least help the huge US trade partner in the short term.

For the FOMC, which exited QE in October, the question now is to decide when to lift its ultra-low key federal funds rate, pegged between zero and 0.25 percent since late 2008 to support the economy’s recovery from the deep 2008-2009 recession.

AFP

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