After a two-month hiatus, the Federal Reserve will reconvene in Washington this week to discuss monetary policy and set the interest rate. Although the Fed is not expected to raise interest rates, the official statement could provide clues about the pace and timing of future adjustments.

The Federal Open Market Committee (FOMC) will begin its two-day meeting on Tuesday, with the official statement scheduled for the following afternoon.

The September meeting is also significant from the perspective of the central bank’s balance sheet. Earlier this year, policymakers said they would begin to unwind their $4.5 trillion balance sheet in the near future. About 71% of economists polled by The Wall Street Journal say the Fed will announce plans to shrink its portfolio on Wednesday.

In addition to its rate statement, the Fed on Wednesday will release its quarterly economic projections covering GDP, unemployment and inflation. The central bank’s “dot plot” summary of interest rate expectations will also be released.

The U.S. economy is coming off a second quarter of faster than expected growth, according to revised estimates released last month. Gross domestic product (GDP) rose 3% annually in the second quarter, the fastest in more than two years and meeting President Trump’s target.

However, the Fed is likely to remain cautious in its economic outlook after Hurricanes Harvey and Irma wreaked havoc on the southern states. Initial jobless claims soared to multiyear highs in the final week of August as Hurricane Harvey slammed Texas. Claims fell by 14,000 in the latest week to a seasonally adjusted 284,000.

Last week, the Labor Department said U.S. consumer prices accelerated in August thanks to a rise in gasoline and rent costs. The consumer price index (CPI) rose 0.4% from July and 1.9% annually. That was the largest year-over-year gain in seven months.  So-called core inflation, which strips away food and energy costs, rose 1.7% annually, official data showed.

The FOMC rate statement will be closely watched by the financial markets, and may influence everything from equities to global currencies. The Fed has raised rates twice this year and is projected to hike once more before the end of 2017, according to the CME Group’s 30-day Fed Fund futures prices.

References

The Wall Street Journal. Economic Forecasting Survey.

Sho Chandra (7 September 2017). “U.S. Jobless Claims Soar by Most Since 2012 on Hurricane Harvey.” Bloomberg.

Reuters (14 September 2017). “US consumer prices accelerate in August.” CNBC.