White House press secretary Sarah Huckabee Sanders told reporters on Tuesday that while President Donald Trump understands that the Fed is an independent agency, "that doesn't take away the president's right to state his opinion." | AP Photo/Jacquelyn Martin Finance & Tax Fed’s rate-hike plans clouded by market turmoil, angry Trump tweets

When Federal Reserve policymakers meet on Wednesday, they're likely to raise interest rates, as they've been signaling for months. But the certainty for the central bank and Wall Street ends there.

With markets facing turbulence, the economy showing some signs of weakening and President Donald Trump's trade wars creating jitters throughout corporate America, all the predictions about what the Fed will do next year have gone out the window.


Trump's relentless campaign of pressure on Fed Chairman Jerome Powell to halt the rate hikes has further clouded the picture.

The Fed has been gradually increasing rates — eight times in the last three years — on the belief that the economic recovery is strong enough to survive without the near-zero rates that persisted for almost a decade.

But the central bank has recently downplayed its estimate of more hikes next year and instead suggested that it’s going to be more unpredictable — a move that might be motivated by politics as well as policy.

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“The political landscape has changed a lot,” said Lou Crandall, chief economist at Wrightson ICAP. “Up until now, the benefits of warning the markets about the worst-case scenario outweighed any costs. That’s not necessarily true now. … You’re waving a red flag at the administration if you keep hammering on the fact that rates need to go up more.”

Those who know Powell — a Trump appointee — say he will do whatever he thinks is best for the economy, not cave in to attacks from the White House. But that doesn’t mean the Fed is eager to invite more attention from the president.

Trump stepped up his onslaught against the central bank this week, tweeting on Monday that it’s “incredible” that the Fed would consider another rate hike on Wednesday, citing “a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down.”

“Take the Victory!” he added.

On Tuesday, he pointed to an op-ed in the Wall Street Journal suggesting it's time for the Fed to pause rate hikes. “I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake,” Trump said.

He also bashed the central bank for its set schedule of allowing its massive holdings of Treasuries and bundled mortgages — which it built up after the financial crisis to spur growth — to shrink by $50 billion every month. That has the effect of draining money from the economy.

“Stop with the 50 B’s,” he tweeted. “Feel the market, don’t just go by meaningless numbers. Good luck!”

White House press secretary Sarah Huckabee Sanders told reporters on Tuesday that while Trump understands that the Fed is an independent agency, "that doesn't take away the president's right to state his opinion."

The president is adding new wrinkles to thorny questions the Fed is already grappling with. The central bank may ultimately end up agreeing with Trump that rate hikes need to stop next year, but it will have to convince markets that its reasons for doing so aren’t political.

Fed policymakers on Wednesday will update their estimates for how many rate hikes there should be next year, and Powell will hold a press conference after the meeting.

Mostly, the Fed has just been emphasizing that it doesn’t know where the economy will go and will be watching closely. But that approach, too, could incur more wrath from Trump, as it’s likely to further increase volatility in the stock market.

“When the outlook becomes more foggy, then the safe bet is to become more data dependent,” said Torsten Slok, chief economist at Deutsche Bank Securities. “The question then is, what data exactly are you looking at? There’s new data coming out every day, and it just confuses the market.”

With the job market still growing at a steady clip and wage gains finally starting to pick up, the Fed has been raising interest rates to keep prices from rising too rapidly and to wean the economy off cheap debt that could eventually start to threaten the stability of the financial system.

In 2017 and 2018, the Fed pressed ahead without much change to its projected path for rates, which was communicated well in advance. It adjusted only by adding one more hike this year, a reaction to tax cuts and increased government spending, which helped juice the economy in the direction of 3 percent annual growth.

Central bank officials have been upbeat about prospects for the economy next year, but they have also become increasingly wary of factors that could be a drag on growth, particularly trade uncertainty and higher tariffs. Higher interest rates are also starting to hit some industries, such as the housing sector.

“The challenge for the Fed is, where should they look? Should they look at the labor market? Well, if that’s the case, they should be raising rates,“ Slok said. “If they look at stock market, ... well, that may warrant some more dovishness and holding off a little bit.”

“It’s difficult to spin all the plates on the sticks, if you will, because you risk that some plate starts falling down,” he said.

Meanwhile, it will be important for the Fed to communicate clearly its reasoning behind any policy shifts, said Glenn Hubbard, dean of Columbia Business School.

“If, for example, the Fed maintains that its economic outlook is the same, but the [estimates for rate hikes] shift down, … then you’ve effectively said you’re changing policy,” Hubbard said. That could mean that the Fed is trying to calm the stock market, which has seen a rash of significant drops in recent weeks, he said.

“They’ll really have to tell us, is it a judgment of the economy, or is it a judgment about how they want to react to the economy?” he added. “Those are two different things.”

Hubbard also emphasized that the Fed is at a crucial juncture where it has to make sure it doesn’t tighten too fast or too slow. Of the 13 cycles of rate increases since World War II, 10 landed the economy in recession — underscoring the need for the Fed to pay close attention to new data.

“The Fed is composed of very talented people,” he said. “Having said that, the Fed historically has made mistakes around turning points.”