Fed set to signal no expectation of rate hikes anytime soon

Patience. A focus on incoming economic data. And no interest rate hikes likely soon.

The message the Federal Reserve is poised to send when its latest policy meeting ends this week is a soothing one. It reflects an abrupt shift in tone since the start of the year in the face of a slowdown in the United States and abroad, persistently tame inflation and a nervous stock market. The shift toward a more hands-off Fed has pleased investors and encouraged the view that the central bank is done raising rates for now and might even act this year to support rather than restrain the economy.

In a statement Wednesday, in updated economic forecasts and in a news conference by Chairman Jerome Powell, the Fed will likely note that while the economy is on firm footing, it faces risks from slowing growth and trade conflicts. Against that backdrop, the thinking goes, it would be unwise to keep raising rates, as the Fed did four times in 2018.

The Fed is instead set this week to keep its key short-term rate in a range of 2.25 percent to 2.5 percent. And most analysts think the policymakers will scale back their projection of rate hikes this year from two to one or perhaps even none.

There is also anticipation that the Fed will specify when this year it expects to stop shrinking its huge portfolio of bonds, part of its balance sheet. Doing so would help keep a lid on loan rates.

RELATED: Take a look at Jerome Powell through the years:

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Jerome Powell through the years
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Jerome Powell through the years
FILE: Jerome Powell, governor of the U.S. Federal Reserve, stands for a photograph at the board's headquarters in Washington, D.C., U.S., on Thursday, April 13, 2017. With the White House scheduling an announcement for 3 p.m. in Washington on Thursday, U.S. President Donald Trump will announce Powell, 64, as his nominee to be Federal Reserve chairman, said several people familiar with the decision, replacing Chair Janet Yellen when her term expires in February. Our editors select the best archive images of Jerome Powell. Photographer: T.J. Kirkpatrick/Bloomberg via Getty Images
FILE: Jerome Powell, governor of the U.S. Federal Reserve, stands for a photograph at the board's headquarters in Washington, D.C., U.S., on Thursday, April 13, 2017. With the White House scheduling an announcement for 3 p.m. in Washington on Thursday, U.S. President Donald Trump will announce Powell, 64, as his nominee to be Federal Reserve chairman, said several people familiar with the decision, replacing Chair Janet Yellen when her term expires in February. Our editors select the best archive images of Jerome Powell. Photographer: T.J. Kirkpatrick/Bloomberg via Getty Images
Jerome H. Powell, a governor on the board of the Federal Reserve System, prepares to testify to the Senate Banking Committee on Capitol Hill in Washington, U.S., June 22, 2017. REUTERS/Joshua Roberts
Federal Reserve Board Governor Jerome Powell discusses financial regulation in Washington, U.S., October 3, 2017. REUTERS/Joshua Roberts
Jerome H. Powell, a governor on the board of the Federal Reserve System, prepares to testify to the Senate Banking Committee on Capitol Hill in Washington, U.S., June 22, 2017. REUTERS/Joshua Roberts
Jerome H. Powell, a governor on the board of the Federal Reserve System, prepares to testify to the Senate Banking Committee on Capitol Hill in Washington, U.S., June 22, 2017. REUTERS/Joshua Roberts
Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarlo, Federal Reserve Board Governor Jerome Powell and moderator Reuters columnist Gina Chon discuss financial regulation in Washington, U.S., October 3, 2017. REUTERS/Joshua Roberts
Federal Reserve Governor Jerome Powell attends the Federal Reserve Bank of Kansas City's annual Jackson Hole Economic Policy Symposium in Jackson Hole, Wyoming August 28, 2015. REUTERS/Jonathan Crosby
Federal Reserve Governor Jerome Powell delivers remarks during a conference at the Brookings Institution in Washington August 3, 2015. REUTERS/Carlos Barria
Federal Reserve Governor Jerome Powell attends a conference at the Brookings Institution in Washington August 3, 2015. REUTERS/Carlos Barria
U.S. Federal Reserve Chair Janet Yellen (L) congratulates Fed Governor Jerome Powell at his swearing-in ceremony for a new term on the Fed's board, in Washington in this handout photo taken and released June 16, 2014. REUTERS/U.S. Federal Reserve/Handout via Reuters (UNITED STATES - Tags: POLITICS BUSINESS) ATTENTION EDITORS - FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS. THIS PICTURE WAS PROVIDED BY A THIRD PARTY. REUTERS IS UNABLE TO INDEPENDENTLY VERIFY THE AUTHENTICITY, CONTENT, LOCATION OR DATE OF THIS IMAGE. THIS PICTURE IS DISTRIBUTED EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS
Federal Reserve Board Governors Jeremy Stein (L) and Jerome Powell attend the swearing in of new Federal Reserve Board Chairwoman Janet Yellen at the Federal Reserve Board in Washington, February 3, 2014. REUTERS/Jim Bourg (UNITED STATES - Tags: BUSINESS POLITICS)
Federal Reserve Board of Governors member Jerome Powell listens during an open board meeting at the Federal Reserve in Washington December 14, 2012. REUTERS/Kevin Lamarque (UNITED STATES - Tags: POLITICS BUSINESS)
Federal Reserve Board of Governors member Jerome Powell listens during an open board meeting at the Federal Reserve in Washington December 14, 2012. REUTERS/Kevin Lamarque (UNITED STATES - Tags: POLITICS BUSINESS)
Elissa Leonard looks on as her husband Jerome Powell is sworn in as a member of the Federal Reserve's Board of Governors by Chairman Ben Bernanke in Washington in this Federal Reserve System handout photo dated May 25, 2012. The former investment banker and U.S. Treasury official is due to fill a term expiring Jan. 31, 2014. REUTERS/Federal Reserve System/Handout (UNITED STATES - Tags: BUSINESS POLITICS) FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS. THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. IT IS DISTRIBUTED, EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS
Jerome Powell, governor of the U.S. Federal Reserve, left, shakes hands with Terry Lundgren, chairman of The Economic Club of New York and executive chairman of Macy's Inc., after speaking at an Economic Club of New York event in New York, U.S., on Thursday, June 1, 2017. Powell�is calling for gradual interest rate increases and a start to balance-sheet reductions later this year if the economy stays on track, though hes watching a recent slowdown in inflation. Photographer: Michael Nagle/Bloomberg via Getty Images
Jerome Powell, governor of the U.S. Federal Reserve, speaks during an Economic Club of New York event in New York, U.S., on Thursday, June 1, 2017. Powell�is calling for gradual interest rate increases and a start to balance-sheet reductions later this year if the economy stays on track, though hes watching a recent slowdown in inflation. Photographer: Michael Nagle/Bloomberg via Getty Images
Daniel Tarullo, left, and Jerome Powell, governors of the U.S. Federal Reserve, talk before the start of a meeting of the Board of Governors of the Federal Reserve in Washington, D.C., U.S., on Monday, Nov. 30, 2015. The Federal Reserve took the final step to ensure it can't repeat the extraordinary steps taken to rescue American International Group Inc. and Bear Stearns Cos. in 2008, adopting formal restrictions on its ability to help failing financial firms. Photographer: Andrew Harrer/Bloomberg via Getty Images
Jeremy Stein, nominee to be a member of the board of governors with the U.S. Federal Reserve, right, listens to fellow nominee Jerome Powell speak during a Senate Banking Committee hearing in Washington, D.C., U.S., on Tuesday, March 20, 2012. Federal Reserve Chairman Ben S. Bernanke stands to gain two lieutenants with expertise on financial markets if the Senate confirms President Barack Obama's nominees to the Board of Governors. Photographer: Andrew Harrer/Bloomberg via Getty Images
Jerome Powell, nominee to be a member of the board of governors with the U.S. Federal Reserve, left, speaks during a Senate Banking Committee hearing with fellow nominee Jeremy Stein in Washington, D.C., U.S., on Tuesday, March 20, 2012. Federal Reserve Chairman Ben S. Bernanke stands to gain two lieutenants with expertise on financial markets if the Senate confirms President Barack Obama's nominees to the Board of Governors. Photographer: Andrew Harrer/Bloomberg via Getty Images
Janet Yellen, former chair of the U.S. Federal Reserve, center, speaks while Jerome Powell, chairman of the U.S. Federal Reserve, left, and Ben Bernanke, former chairman of the U.S. Federal Reserve, listen during the American Economic Association and Allied Social Science Association Annual Meeting in Atlanta, Georgia, U.S., on Friday, Jan. 4, 2019. Powell said the central bank can be patient as it assesses risks to a U.S. economy and will adjust policy quickly if needed, but made clear he would not resign if President Donald Trump asked him to step aside. Photographer: Elijah Nouvelage/Bloomberg via Getty Images
Jerome Powell, chairman of the U.S. Federal Reserve, speaks during the American Economic Association and Allied Social Science Association Annual Meeting in Atlanta, Georgia, U.S., on Friday, Jan. 4, 2019. Powell said the central bank can be patient as it assesses risks to a U.S. economy and will adjust policy quickly if needed, but made clear he would not resign if President Donald Trump asked him to step aside. Photographer: Elijah Nouvelage/Bloomberg via Getty Images
Jerome Powell, chairman of the U.S. Federal Reserve, speaks during the American Economic Association and Allied Social Science Association Annual Meeting in Atlanta, Georgia, U.S., on Friday, Jan. 4, 2019. Powell said the central bank can be patient as it assesses risks to a U.S. economy and will adjust policy quickly if needed, but made clear he would not resign if President Donald Trump asked him to step aside. Photographer: Elijah Nouvelage/Bloomberg via Getty Images
WASHINGTON, Dec. 19, 2018 -- U.S. Federal Reserve Chairman Jerome Powell speaks during a press conference in Washington D.C., the United States, on Dec. 19, 2018. The U.S. Federal Reserve on Wednesday raised short-term interest rates by a quarter of a percentage point, but signaled a slower pace of rate hikes next year as the U.S. economy is expected to cool down. (Xinhua/Liu Jie) (Xinhua/Liu Jie via Getty Images)
WASHINGTON, Dec. 19, 2018 -- U.S. Federal Reserve Chairman Jerome Powell speaks during a press conference in Washington D.C., the United States, on Dec. 19, 2018. The U.S. Federal Reserve on Wednesday raised short-term interest rates by a quarter of a percentage point, but signaled a slower pace of rate hikes next year as the U.S. economy is expected to cool down. (Xinhua/Liu Jie) (Xinhua/Liu Jie via Getty Images)
WASHINGTON, Dec. 19, 2018 -- U.S. Federal Reserve Chairman Jerome Powell speaks during a press conference in Washington D.C., the United States, on Dec. 19, 2018. The U.S. Federal Reserve on Wednesday raised short-term interest rates by a quarter of a percentage point, but signaled a slower pace of rate hikes next year as the U.S. economy is expected to cool down. (Xinhua/Liu Jie) (Xinhua/Liu Jie via Getty Images)
Jerome Powell, chairman of the U.S. Federal Reserve, left, and Steven Mnuchin, U.S. Treasury secretary, arrive for a Financial Stability Oversight Council (FSOC) meeting at the U.S. Treasury in Washington, D.C., U.S., on Wednesday, Dec. 19, 2018. When Mnuchin fingered high-frequency trading and the Volcker Rule as factors behind recent misery in the stock market he left out some other possibilities that might be contributing. Namely, the White Houses's ongoing trade conflict with China and President Donald Trump's threat last week to shut down the government. Photographer: Al Drago/Bloomberg via Getty Images
Steven Mnuchin, U.S. Treasury secretary, center, speaks during a Financial Stability Oversight Council (FSOC) meeting at the U.S. Treasury in Washington, D.C., U.S., on Wednesday, Dec. 19, 2018. When Mnuchin fingered high-frequency trading and the Volcker Rule as factors behind recent misery in the stock market he left out some other possibilities that might be contributing. Namely, the White Houses's ongoing trade conflict with China and President Donald Trump's threat last week to shut down the government. Photographer: Al Drago/Bloomberg via Getty Images
Steven Mnuchin, U.S. Treasury secretary, center, speaks while Jerome Powell, chairman of the U.S. Federal Reserve, left, and Jay Clayton, chairman of the Securities and Exchange Commission (SEC), listen during a Financial Stability Oversight Council (FSOC) meeting at the U.S. Treasury in Washington, D.C., U.S., on Wednesday, Dec. 19, 2018. When Mnuchin fingered high-frequency trading and the Volcker Rule as factors behind recent misery in the stock market he left out some other possibilities that might be contributing. Namely, the White Houses's ongoing trade conflict with China and President Donald Trump's threat last week to shut down the government. Photographer: Al Drago/Bloomberg via Getty Images
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All of which suggests that the Fed may recognize that it went too far after it met in December. After that meeting, the policymakers forecast two additional rate increases in 2019, and Powell said he thought the balance sheet reduction would be on "automatic pilot." That observation, in particular, seemed to spook investors with the prospect of steadily higher borrowing rates for consumers and businesses and perhaps a further economic slowdown. Stock prices tumbled for days afterward.

President Donald Trump, injecting himself not for the first time into the Fed's ostensibly independent deliberations, made clear he wasn't happy, calling the December rate hike wrong-headed. Reports emerged that Trump was even contemplating trying to fire Powell, who had been his hand-picked choice to lead the Fed.

But after the December turmoil, the Fed in January began sending a more comforting message. At an economic conference soon after New Year's, Powell stressed that the Fed would be "flexible" and "patient" in raising rates — a word he and other policymakers have invoked repeatedly since — and "wouldn't hesitate" to change course if necessary.

In the subsequent weeks, the Fed has gone still further, with Powell signaling that the central bank is close to announcing a plan to end its bond reduction program. This has helped cheer investors because it would likely mean that bond rates would remain contained and some investors would shift money into stocks.

Powell, appearing last week on CBS's "60 Minutes," denied that pressure from Trump had influenced the Fed's policy shift. Private economists generally agree that a slowing economy and a sinking stock market, which eased Fed worries about any possible stock bubble, were more decisive factors.

"Conditions changed dramatically in December with the stock market collapsing and global growth slowing " said David Jones, an economist and author of several books on the Fed. "Everything came together, and 'patient' became the Fed's new watchword."

Because the change in Fed policy happened so fast, some analysts say the chairman may use his news conference Wednesday to explain the changed outlook.

"I believe Powell will want to provide a justification of why the Fed has done a 180-degree turn in the last few months," said Sung Won Sohn, chief economist at SS Economics.

Economists also expect the Fed's updated forecasts to downgrade its estimate of growth in light of a slowdown in manufacturing and retail, sluggish housing and construction activity and global pressures, including an ongoing trade war. Still, some analysts say, the Fed will want to avoid escalating public concerns about the health of the economic expansion, the second-longest on record.

"They don't want to be too alarming," said Diane Swonk, chief economist at Grant Thornton. "Much of this weakness is likely to be transitory."

After sharply falling in December, stocks have rallied and recouped most of their late-year losses in trading since the start of 2019, a rebound credited larger to the Fed's easier monetary stance. Some analysts say they think the Fed won't raise rates at all this year if the outlook becomes as dim as they are forecasting.

The economy, as measured by the gross domestic product, grew 2.9 percent last year, the fastest pace since 2015. The budget plan the Trump administration proposed last week forecasts that growth will reach 3.2 percent this year and stay around 3 percent for the next decade.

That is far more optimistic than outside economists foresee. Most of them expect growth to weaken to just above 2 percent this year. For the Fed, the key question is whether the slowdown represents a soft landing for the economy, with inflation contained and growth modest but steady, or something more alarming.

Swonk and most other economists have said the economy is likely to avoid a recession this year.

"I think we will be able to achieve 2.3 percent growth," she said. "It's a big slowdown from 2018, but it is still fast enough that the unemployment rate will go down further and we will get broader wage gains."

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