Analysts and investors are generally not expecting the Federal Reserve to raise its policy rate of interest this week.
The latest speech by a Federal Reserve Governor, Governor Lael Brainard called for prudence in considering any interest rate increase at this time.
Review of the Fed's balance sheet seems to indicate that Fed officials have not been preparing the banking system for such an increase as it did before the December move.
The Federal Open Market Committee of the Federal Reserve System meets on Tuesday and Wednesday of this week to determine the future path of monetary policy. The meeting has garnered lots and lots of attention as analysts and investors await the decision about whether or not the FOMC will raise the Fed's policy interest rate this week.
The betting seems to be that the Fed will keep its policy rate where it is. The final piece of evidence supporting this feeling was the speech given by Fed Governor Lael Brainard about a week ago. Ms. Brainard recommended "prudence" at this time.
Since then the "data driven" Federal Reserve has received additional "soft" economic data that provided no support to the officials that want to raise the rate. The additional evidence that supports the view that the Fed will not raise its policy rate at this week's meeting comes from the Fed's balance sheet.
As readers of this blog know, I look for signs of Fed actions in the way the Fed is managing its balance sheet. In my last post on this issue, I could find no evidence that the Fed was preparing the market for a rise in its policy rate.
In the Fed's last interest rate move, the Fed seemed to have been working for about two months to quietly remove excess reserves from the banking system so as to make markets a little bit tighter so as to support the rise in the rate.
After the increase took place in the middle of December, the Fed then backed-off to avoid any excess tightness in liquidity that might disrupt the banking system. In the current situation, there is no similar evidence that the Federal Reserve is making an effort to prepare the markets for another increase.