Will the Fed lose its patience?

CNN/Money ^ | May 3, 2004 | Chris Isidore

[RWR8189]

Central bank not seen raising rates Tuesday but FOMC likely to signal that a rate hike is coming.

NEW YORK (CNN/Money) - Economists will be shocked if the Federal Reserve were to change interest rates Tuesday, but most are convinced the central bank's policy makers will do so soon.

The Fed's Open Market Committee meeting Tuesday is its first since recent economic reports showed the highest jobs expansion and inflationary pressure in several years.

But even with rates near four-decade lows, economists believe it's too soon to expect the Fed to shake up the market with a sudden rate hike, which would be its first since May 2000.

"I'd say there's only a 25 percent chance of a rate hike in June even," said Bill Cheney, chief economist for MFC Global Investment Management. "Even with another strong jobs report Friday, they'll want to have something that looks more definitely like a trend."

It's all in the words

So the focus will again fall to the language of the statement the FOMC will release when the meeting ends, namely the part that said the Fed's not ready to raise rates:

"With inflation quite low and resource use slack, the committee believes that it can be patient in removing its policy accommodation," said the FOMC's March statement.

Economists said they would be surprised if the word "patient" is still found in Tuesday's statement.

"We believe it is time for the Fed to drop the sentence," said a note from economists at Lehman Brothers. "Until August last year, the Fed had never included a longer-term commitment about policy in its directive and, with the economy finally showing clear signs of normalization, it is time for a more normal directive."

[mlbford2]

should be an interesting day tomorrow. I say he holds. who knows what the fed futures are saying about it?

[demlosers]

"I'd say there's only a 25 percent chance of a rate hike in June even," said Bill Cheney, chief economist for MFC Global Investment Management.

That what I've been thinking for months it would be in June - depending on job creation. The FED is probably waiting for one more good period of job growth before they raise the interest rates.