By Howard Schneider
Washington (Reuters) – Tumultuous stock markets and signs of tightening credit can make the work of the federal reserve even more difficult this week while decision -makers of the American central bank try to weigh if consumer spending will suffer from households as potential blow to their net value and more difficulty obtaining loans.
American retail sales for February, reported on Monday in the last set of hard economic data, Fed officials will see before the kick -off of their two -day political meeting on Tuesday, were lower than expected. Some economists have seen the slowdown in expenses in optional categories such as restaurant meals as a signal that consumers to all low -income households – began to regain their purchases.
“Restaurant sales … have evolved laterally at an average level of three months in the last two months,” wrote Citi analysts. “This … could suggest a gentleness more broadly with the consumption of services. Other discretionary categories such as furniture, sports items and clothing was lower” because consumers spent more in non -discretionary items.
The Fed will publish a new policy declaration at 2 p.m. PM (1800 GMT) on Wednesday. Although the central bank should leave its benchmark interest rate during the night unchanged in the range of 4.25% to 4.50%, it will also issue new economic projections of political decision -makers who will give an idea of how they consider that President Donald Trump’s policies will therefore affect economic growth, inflation and unemployment, and how interest rates may need to change.
A slowdown in consumption expenditure could arouse Fed concerns about growth and make it more inclined to reduce rates. But volatility around Trump’s trade policies, which risk increasing prices, has left Fed officials confronted with the potential dilemma of a lower economy and an acceleration of inflation.
The Atlanta Fed GDPNOW Tracker, updated after data on retail sales, estimates consumption expenditure in the first quarter can only increase by 0.4% against a prior estimate of 1.1%.
Adding to an already complex situation is a recent fall in stock prices which has erased nearly 6 billions of dollars of market value, the blow covering individual and institutional investors as well as household retirement accounts.
Tightening conditions
In moments of market volatility, Fed officials will often emphasize that their work is to maintain stable inflation and maximum employment, not to maintain shares.
But equity prices and financial markets in general influence the behavior of the broader economy, and in recent weeks, the signs have highlighted the tightening of credit conditions.
