WASHINGTON • Like everyone trying to figure out where the United States economy is heading, the Federal Reserve is waiting to see what the whirlwind of executive orders and remarks from President Donald Trump mean for growth as it weighs the timing of the next interest-rate hike.
US central bankers left their benchmark lending rate unchanged on Wednesday and used their statement to acknowledge that sentiment has gained, and that inflation will rise to their 2 per cent target even with "gradual" adjustments in interest rates.
"The Federal Reserve acknowledged the boost in sentiment on the part of consumers and businesses, but was not certain enough about the outlook to signal a rate hike was a strong possibility in the near future," said Mr Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
Investors see a roughly one-in- three chance the Fed will raise rates by a quarter percentage point at its next meeting, from March 14 to 15, with the odds of an increase rising to around 70 per cent by their June meeting, according to pricing in federal funds futures markets.
In his first days in office, Mr Trump has rolled out executive orders on immigration and regulatory reduction. He's announced the US will pull out of the Trans-Pacific Partnership, and signed a memorandum to revive the Keystone XL pipeline. Infrastructure spending and tax reform are also on his agenda. Just what it all means for growth going forward is still hard to see.
Ms Cheryl Bachelder, the chief executive of Popeyes Louisiana Kitchen, told analysts last month that there is "genuine optimism" about the future stemming from the election that's "yet to become real".
Sentiment going up is positive for the economy, but sentiment can be ephemeral.
MR DAVID BERSON, chief economist at Nationwide Insurance.
"That's what to watch in 2017," she added. "It's the things people are optimistic" about that could "turn into truth".
Executives and policy makers will also be keeping a close eye on today's January payrolls report. Economists expect employers added 175,000 jobs.
On Feb 14 and 15, Fed chair Janet Yellen delivers her semi-annual testimony to Congress. This will give investors a view of her outlook that could reinforce the sense that she's on board with raising rates three times this year.
The Fed provided little direction in the statement on Wednesday on when it might next raise rates.
Policymakers in December pencilled three hikes into their 2017 forecasts, but they differ over assumptions about how much any tax cuts, spending increases and regulatory rollbacks will boost growth and inflation.
"Sentiment going up is positive for the economy, but sentiment can be ephemeral," said Mr David Berson, chief economist at Nationwide Insurance.
"The committee needs to see it translated into tangible increases in spending by consumers and businesses" to move three times, he said.