Fed Expected to Leave Interest Rates as Is

Remember the Federal Reserve? Its policymakers meet on Tuesday, but Wall Street is paying the meeting little regard.

With the economy showing plenty of signs of slowing, the Fed is expected to leave interest rates unchanged.

Economists see virtually no chance of the Fed raising its key short-term interest rate, now 6.5%, at Tuesday’s meeting.

Still, most analysts surveyed by Bridge News expect the Fed to keep warning that the risks remain tilted toward higher inflation.

Most economists see the Fed staying on hold the rest of the year.

The Bridge Poll of 21 economists taken Wednesday found that analysts pegged the odds of a rate hike at the Oct. 3 meeting at just 6%, little changed from the 7% odds economists gave when the last poll was taken on Sept. 1.

But 20 of the 21 economists polled expect the Fed to signal that the risks remain weighted toward higher inflation even as the economy is cooling down. The Fed has been warning all year that the risks to the economy remain on the upside, and it will not want to change its tune against a backdrop of rising oil prices and tight labor markets, economists said.

“The Fed is not going to want to take off the bias in that environment,” said Ethan Harris, senior economist at Lehman Bros.

Paul Kasriel, chief domestic economist at Northern Trust Co., argued that inflation tends to be a lagging indicator, so even if growth is slowing, inflation is likely to pick up further, both for the overall and core measures.

The poll found economists see a 21% chance of the Fed raising rates at its Nov. 15 policy meeting if no rate change has happened by then.

Economists are more divided about the longer-term Fed outlook, with the poll finding analysts nearly evenly split about whether the Fed’s next move will be a rate hike or rate cut.