The Federal Reserve began a two-day monetary policy meeting on Wednesday, and it’s widely expected that they will remain stoic in the face of recent market gyrations, with no change at this meeting, but an interest rate hike in December, followed by three more rate hikes in 2019.
Despite the recent volatility in markets, there is little chance that the Fed will reverse course at this time. Instead they are almost certain to maintain their policy of steady, gradual interest rate hikes. Even if they are beginning to have doubts they will need to have more data before changing their current opinion.
In addition, the Fed needs to be seen as in control. They can’t let it appear as if the market is dictating monetary policy.
There are some analysts who feel that the statement from Fed chairman Jerome Powell at the October meeting that “we’re a long way from neutral” was the catalyst that sparked the selloff in equity markets. Even if that’s true, Powell is not going to retract the comment, or reverse the current policy stance of the Fed just because tightening monetary policy has led to some losses in the stock market.
It’s expected that the Fed will also maintain their stance that economic activity in the U.S. is continuing to grow at a solid pace. Whether they will mention the effects of the trade war with China is up in the air, but even if they do it will likely only to say Chinese trade tariffs have had little measurable impact, which could be a help to struggling markets.