The Federal Reserve's pause on interest rate hikes should continue this week, but analysts are watching for any signals that the central bank remains open to tightening again later this year.
The Fed, whose rate-setting Federal Open Market Committee meets again March 19 and 20, has cited increasing risks to the economic outlook as a key reason for their new mantra of staying patient.
The uncertainties have shown few signs of abating, with the U.S. and China still at odds over key issues in their trade negotiations, growth in Europe continuing to slow and British officials edging closer to blowing past a critical Brexit deadline. Analysts expect the Fed will remain on hold and continue to monitor to what extent the dip in global growth will spill over into the U.S.
"Unless something changes in the global growth prospects, I don't see how they can raise rates," said Kathy Jones, chief fixed income strategist at Charles Schwab.
Jones and other analysts will also pay close attention to any possible updates from the Fed on the future of its $4 trillion balance sheet, including what it wants the portfolio to look like once it wraps up its effort to trim its assets every month.
Clues on the rate-hike front could come in Fed officials' quarterly "dot plot" projections. In December 2018, the median forecast from Fed officials indicated they were penciling in two hikes in 2019. Analysts expect officials will nudge down their outlook to just one increase for the year, though they also note the possibility that the median projection could show that the Fed may keep rates flat this year.
Fed officials shifted to their wait-and-see approach in January, though minutes of the meeting showed that officials appear to be lining up in two camps.
Some, such as Atlanta Fed President Raphael Bostic and Philadelphia Fed President Patrick Harker, are still baking in one more rate hike this year in their baseline outlook. Others, including New York Fed President John Williams, say they are comfortable with the Fed's current policy stance and are no longer signaling they have a bias toward raising rates again.
There is a chance that the latter group is large enough to shift the median view at the Fed down to zero rate hikes in 2019, economists agree.
But the more likely outcome is that officials will signal they are penciling in one hike instead of two, reflecting an "evolution of views rather than a full-scale rethink" of their policy outlook, wrote Michael Hanson, head of global macro strategy at TD Securities.
A dot plot showing that more hikes may be on the way could once again "roil the markets," where many investors believe the Fed is done raising rates, wrote Richard Moody, chief economist at Regions Financial Corp., in a research note. That means that Fed Chairman Jerome Powell "will have his work cut out for him" as he explains officials' views during his post-meeting news conference, Moody added.
The issue highlights the nascent debate at the Fed over whether the current version of the dot plot is "doing more harm than good," as St. Louis Fed President James Bullard said in a February interview with S&P Global Market Intelligence. Bullard, for example, said that last year's signals from the Fed that it would raise rates in December 2018 "put us in a box," helping lead to a rate hike even as strains on the economy were becoming more apparent.
Fed officials debated the usefulness of the dot plot in January, minutes of the meeting showed, and Powell discussed the "collateral confusion that sometimes surrounds the dots" in a March 8 speech.
The Fed chief said the dot plot can be a useful communication tool "if properly understood," but he highlighted that officials can sometimes have an "unusually high" degree of uncertainty about the projections they submit. He also cautioned against being overly focused on the individual dots, using a zoomed-in version of a painting from the pointillist artist Georges Seurat to show the importance of taking a step back and getting a clear view of the broader picture.
"If you are too focused on a few dots, you may miss the larger picture," Powell said.
Analysts do not expect the Fed to announce any immediate changes to the dot plot, though officials will likely study the issue as part of their broader review of their monetary policy framework, TD Securities' Hanson wrote.