Fed May Begin Move Toward Raising Rates

Federal Reserve officials will lay the groundwork this week for a move away from the lowest borrowing costs in a generation, as they prep financial markets for a possible summer rate hike, analysts say.

No one expects the U.S. central bank to raise interest rates at Tuesday’s policy session, but Fed watchers said a post-meeting statement needs to bow to recent strong economic data and free the Fed’s hand for eventual action.

“I think there will be quite a rewrite and I think it will prepare us for the inevitable,” said Greg Valliere, an analyst with Schwab Soundview Capital Markets in Washington.

In a series of 13 reductions dating to early 2001, the Fed slashed the overnight federal funds rate to 1%, the lowest since 1958, in a bid to combat economic weakness and ensure a potentially crippling drop in consumer prices did not set in.

Now, economists are increasingly convinced that the recovery is durable -- the last three quarters have seen the strongest economic growth in 20 years -- and some think the Fed risks doing too little, too late to head off inflation.

“The elephant is practically in the room. It’s very hard to ignore,” former senior Fed staffer Steve Axilrod said.