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.
Japan has deployed long-range missiles in a southwestern region near China, the Japanese defense minister said yesterday, at a time when ties with Beijing are at their lowest in recent years. The missiles were installed in Kumamoto in the southern region of Kyushu, as Japan is attempting to shore up its military capacity as China steps up naval activity in the East China Sea. “Standoff defense capabilities enable us to counter the threat of enemy forces attempting to invade our country ... while ensuring the safety of our personnel,” Japanese Minister of Defense Shinjiro Koizumi said. “This is an extremely important initiative for
MORE POPULAR: Taiwan Pass sales increased by 59 percent during the first quarter compared with the same period last year, the Tourism Administration said The Tourism Administration yesterday said that it has streamlined the Taiwan Pass, with two versions available for purchase beginning today. The tourism agency has made the pass available to international tourists since 2024, allowing them to access the high-speed rail, Taiwan Railway Corp services, four MRT systems and four Taiwan Tourist Shuttles. Previously, five types of Taiwan Pass were available, but some tourists have said that the offerings were too complicated. The agency said only two types of Taiwan Pass would be available, starting from a three-day pass with the high-speed rail and a three-day pass with Taiwan Railway Corp. The former costs NT$2,800
POLLS CONCERNS: There are concerns within the KMT that a Cheng Li-wun-Xi Jinping meeting could trigger a voter backlash in elections in November Chinese Nationalist Party (KMT) Chairwoman Cheng Li-wun (鄭麗文) accepted an invitation from Chinese President Xi Jinping (習近平) to visit next month, her party and Chinese state media reported yesterday. Cheng, who took up her role in November last year, “gladly accepted” the invitation to lead a delegation to China, the KMT said in a statement, confirming a Xinhua news agency report. Cheng “looks forward to joint efforts by both parties to advance the peaceful development of cross-strait relations, promote cross-strait exchanges and cooperation, and work for peace in the Taiwan Strait and greater well-being for people on both sides,” the statement said. Chinese
SIGNIFICANT TO THE WORLD: The delegation’s visit aims to send a clear message that bipartisan support for Taiwan is consistent, US Senator Jeanne Shaheen said The US Senate’s bipartisan support for Taiwan remains strong and Taiwan-US ties would continue for decades to come, a US Senate delegation said in Taipei yesterday, while calling on the legislature to swiftly pass a special defense budget bill. A US delegation led by Democratic US Senator Jeanne Shaheen and Republican US Senator John Curtis — both members of the US Senate Committee on Foreign Relations — arrived in Taiwan yesterday for a two-day visit. The other senators of the delegation included Senate Taiwan Caucus cochair Thom Tillis and Senate Committee on Armed Services senior member Jacky Rosen. Shaheen told a news
RSS