With the U.S. economy in free fall and the Federal Reserve raising rates for the first time since 2009, investors are being asked to expect the Fed to raise rates again at some point.
The Federal Open Market Committee will meet on May 25-26, and is expected to announce a range of policy changes that include slowing the pace of the rise in interest rates and raising rates gradually, according to people familiar with the matter.
The Fed will likely announce the latest set of policy moves before the May 25 meeting, they said, speaking on condition of anonymity because they were not authorized to speak publicly.
The Fed has been tightening monetary policy since late 2015, when it raised its benchmark overnight rate from 0.25 percent to 0.50 percent.
That followed a rise of nearly two percentage points last year, the Fed said.
The central bank has been keeping its benchmark interest rate close to zero for almost three years, and its decision last month to increase the benchmark rate was seen as a sign that it could move more gradually.
Inflation, though, is at historically low levels, the people said, citing a report from the National Association of Realtors that showed inflation was only 0.7 percent last year.
The people added that the central bank’s decision to move gradually toward a rate hike would help the economy and help to maintain a “healthy” financial system.
They said the central banker will likely unveil a set of short-term rates and medium-term inflation targets at the meeting, although it was not clear when they would be announced.
The next Fed meeting is scheduled for May 25, but the latest report from NARU suggests the Fed may move later.
The NARO also reported that while the Fed could increase rates by as much as a third this year, it will be unable to raise them as quickly as it did last year and that inflation would rise as a result.
The National Association for Business Economics said in a report earlier this month that it expects inflation to rise as low as 1.1 percent this year and 2.4 percent next year.
The report did not give an estimate for when inflation could reach 2.7 to 3 percent.
While the Fed is expected be more willing to increase rates this year than last, that could change if inflation does not pick up, said Robert Kagan, a senior fellow at the Brookings Institution.
If the economy continues to show signs of improvement, the central banking authority could increase interest rates again, but it will likely take longer, he said.