US Fed could signal a policy shift toward future rate cuts

The Federal Reserve seems poised to pivot from keeping interest rates steady to holding out the option of cutting rates if it were to decide that the economic expansion needs support.

The Fed isn't considered ready to announce that it's reducing rates for the first time in more than a decade.

But when it ends its latest policy meeting Wednesday, the central bank is expected to signal an inclination to ease credit sometime within the next several months. What it won't likely do is indicate when that might happen.

"I think the Fed is going to send the markets a clear signal that they are ready to lower rates in the very near future," said Brian Bethune, an economics lecturer at Tufts University.

Bethune said he thinks the first rate cut will occur when the Fed next meets at the end of July and then a second one at its subsequent meeting in mid-September.

"I will be looking for two rate cuts to have an impact," Bethune said.

Other Fed watchers have said they aren't sure rates will be cut anytime soon. Many think the policymakers want at least to see whether a meeting that Presidents Donald Trump and Xi Jinping are to hold at the end of the month produces any breakthrough in the US-China trade war.

The Fed will announce its decisions Wednesday in a policy statement after its meeting, followed by a news conference with Chairman Jerome Powell.

The central bank will also update its forecasts for economic growth, employment, inflation and interest rates.

If investors are hoping for clarity about the Fed's policy plans for the coming months, they're likely to be disappointed. Some analysts think Powell will merely echo the theme he struck in a speech earlier this month: That the Fed will act if it thinks the Trump administration's trade conflicts are threatening the economic expansion.

That comment signaled a shift from holding rates steady to at least the hint of rate cuts, and it ignited a stock market rally.

Economists say when — or even whether — the Fed eases credit this year will depend on a host of factors that are hard to predict. Will Trump's trade wars be resolved before they inflict real damage on the economy? Will the job market remain resilient even as growth slows? Will inflation finally edge close to the Fed's target level?

Many analysts think the Fed will wait until September at the earliest to announce its first drop in its benchmark short-term rate since 2008 and might not cut again in 2019. A few Fed watchers foresee no rate cut at all this year, especially if the United States and China reach some tentative resolution to the trade war.