MARKET UPDATE BLOG

Rate Hikes on the Horizon?

July 30, 2014

The U.S. Federal Reserve on Wednesday looks certain to press forward with its plan to wind down its bond-buying stimulus, and could offer some vague clues on how much nearer it might be to finally raising interest rates.

The central bank is widely expected to cut its monthly asset purchases to $25 billion from $35 billion, which would leave it on course to shutter the program this fall.

With little drama expected from the decision, and no fresh economic projections or news conference to guide investors, financial markets will be left to scour the Fed’s announcement for any hint on whether officials are growing more anxious to start to reverse their monetary accommodation.

The Fed has kept overnight interest rates near zero since December 2008 and has more than quadrupled its balance sheet to $4.4 trillion through a series of bond purchase programs.

However, with unemployment dropping and inflation firming, the Fed could suggest the days of this monetary largesse are increasingly numbered. The government on Wednesday said the U.S. economy grew at a 4 percent annual rate in the second quarter, which could bolster the hand of officials within the central bank who have begun pushing for a rate hike sooner rather than later.