On Groundhog Day at the Federal Reserve, the scenario will be familiar: The central bank will once again announce a quarter-point rate hike, with reassuring words about the steady growth of the US economy.
The deja-vu scene will be reminiscent of the 1993 film Groundhog Day, in which the hero (Bill Murray) finds himself trapped in the same surreal routine each time he wakes up.
Coincidentally, the central bank policymaking arm wraps up a two-day meeting on Feb. 2 -- the day the fabled groundhog emerges from his hole in Pennsylvania and predicts, depending on whether he sees his shadow, if there will be an early spring or six more weeks of winter. At the Groundhog Day meeting, the Fed is expected to announce a quarter-point rate increase for the sixth consecutive time.
Since last summer, the Fed and its chairman, Alan Greenspan, have been on a steady path of quarter-point rate hikes, bringing the key federal funds rate to 2.25 percent at the end of the year from 1.0 percent in June.
And analysts are virtually unanimous in saying that the Fed is likely to repeat itself following a series of economic reports which show steady if less-than-spectacular growth.
"The upcoming Fed meeting could be one of the least interesting in recent memory. The futures market is fully pricing in a 25-basis-point hike," said Lehman Brothers economist Ethan Harris.
"There is also little reason for the Fed to change its language: `Output appears to be growing at a moderate pace,' `labor market conditions continue to improve,' and `inflation expectations remain well contained,' so `policy accommodation can be removed at a pace that is likely to be measured.'"
In the most significant data of the past week, the government said US economic growth cooled in the fourth quarter to a 3.1 percent annualized rate, the weakest in seven quarters, as the massive trade deficit weighed on the economy. This, however, led to gross domestic product growth for the full year of 4.4 percent, the fastest pace since 1999.
Other recent data showed rising durable goods orders, a positive sign for manufacturing, and increasing consumer confidence, which may mean steady spending.
Thus far, Harris said, the Fed moves to bring interest rates up from a highly stimulative level to a more normal rate have not derailed the world's largest economy.
"The Fed does not want to damage the economy," he said.
Federal Open Market Committee members "also probably recognize that the economy could not handle a normalization of financial conditions. But the Fed is unlikely to pause in its rate hikes until the markets take notice," he said.
With little mystery about the upcoming meeting, analysts are trying to gauge how far and how fast the Fed will go in its "measured" moves on interest rates.
Nariman Behravesh, chief economist at Global Insight research group, said the latest economic reports "validate the Fed's goal of slow, steady increases in interest rates," and predicted five more increases this year, to bring the base rate to 3.5 percent by December.
Behravesh said that despite the apparent cooling of growth, "the underlying components of the domestic economy continue to be strong."
He predicted that consumer spending may still grow despite concerns about overextended and debt-ridden Americans.
"If you look at the asset side and net worth, consumers are actually in pretty good shape," he said. "We don't draw the conclusion the US consumer is in dire shape."
But Paul McCulley, managing director at bond firm Pacific Investment Management Co, predicted that the Fed would soon end its tightening for fear of choking off economic growth.
"I think the Fed will stop between 2.5 percent and 3.0 percent," McCulley said in a speech to the Investment Analysts Society of Chicago.
The Fed "is not trying to shut this economy down," he said.
DETERRENCE: With 1,000 indigenous Hsiung Feng II and III missiles and 400 Harpoon missiles, the nation would boast the highest anti-ship missile density in the world With Taiwan wrapping up mass production of Hsiung Feng II and III missiles by December and an influx of Harpoon missiles from the US, Taiwan would have the highest density of anti-ship missiles in the world, a source said yesterday. Taiwan is to wrap up mass production of the indigenous anti-ship missiles by the end of year, as the Chungshan Institute of Science and Technology has been meeting production targets ahead of schedule, a defense official with knowledge of the matter said. Combined with the 400 Harpoon anti-ship missiles Taiwan expects to receive from the US by 2028, the nation would have
North Korea yesterday fired about 10 ballistic missiles to the sea toward Japan, the South Korean Joint Chiefs of Staff (JCS) said, days after Pyongyang warned of “terrible consequences” over ongoing South Korea-US military drills. Pyongyang recently dashed hopes of a diplomatic thaw with Seoul, Washington’s security ally, describing its latest peace efforts as a “clumsy, deceptive farce.” Seoul’s military detected “around 10 ballistic missiles launched from the Sunan area in North Korea toward the East Sea [Sea of Japan] at around 1:20pm,” JCS said in a statement, referring to South Korea’s name for the body of water. The missiles
‘UNWAVERING FRIENDSHIP’: A representative of a Japanese group that co-organized a memorial, said he hopes Japanese never forget Taiwan’s kindness President William Lai (賴清德) yesterday marked the 15th anniversary of the Tohoku earthquake and tsunami, urging continued cooperation between Taiwan and Japan on disaster prevention and humanitarian assistance. Lai wrote on social media that Taiwan and Japan have always helped each other in the aftermath of major disasters. The magnitude 9 earthquake struck northeastern Japan on March 11, 2011, triggering a massive tsunami that claimed more than 19,000 lives, according to data from Japanese authorities. Following the disaster, Taiwan donated more than US$240 million in aid, making it one of the largest contributors of financial assistance to Japan. In addition to cash donations and
CLOSER TO CHINA: The upgraded Type-12 missile has a range of about 1,000km, compared with the original model’s range of 200km, and can reach mainland China Japan is preparing to deploy its first batch of domestically developed long-range missiles, with their launchers arriving at an army camp yesterday, as the country accelerates its offensive capability in response to rising challenges in the region. The upgraded Type-12 land-to-ship missiles are to be deployed at Camp Kengun in Japan’s southwestern prefecture of Kumamoto by the end of this month, completing the process of deployment, Japanese Chief Cabinet Secretary Minoru Kihara said without giving details. Army vehicles carrying the launchers and other equipment arrived past midnight in a highly secretive mission criticized by residents. Dozens of people stood outside of the
RSS