(Adds data GDP, private sector-hiring, inflation and background
* $10 billion cut expected in monthly bond buying
* Investors to parse statement for rate hike clues
* Fed could nod to drop in jobless rate
By Michael Flaherty
WASHINGTON, July 30 The U.S. Federal Reserve on
Wednesday looks certain to press forward with its plan to wind
down its bond-buying stimulus, and could offer some vague clues
on how much nearer it might be to finally raising interest
The central bank is widely expected to cut its monthly asset
purchases to $25 billion from $35 billion, which would leave it
on course to shutter the program this fall.
With little drama expected from the decision, and no fresh
economic projections or news conference to guide investors,
financial markets will be left to scour the Fed's announcement
for any hint on whether officials are growing more anxious to
start to reverse their monetary accommodation.
The Fed has kept overnight interest rates near zero since
December 2008 and has more than quadrupled its balance sheet to
$4.4 trillion through a series of bond purchase programs.
However, with unemployment dropping and inflation firming,
the Fed could suggest the days of this monetary largesse are
increasingly numbered. The government on Wednesday said the U.S.
economy grew at a 4 percent annual rate in the second quarter,
which could bolster the hand of officials within the central
bank who have begun pushing for a rate hike sooner rather than
"It is possible that the Fed will begin to alter its view on
how much slack remains in the labor market," Paul Dales, of
Capital Economics, said in a research note.
After its last meeting six weeks ago, the Fed said
unemployment "remains elevated." Since then, the jobless rate
has fallen to a near six-year low of 6.1 percent.
JPMorgan economist Michael Feroli said in a research note
that the central bank could modify its language to say "somewhat
elevated." Such a change would allow the Fed "a more gradual
pivot in communications toward recognizing they are making
progress toward their mandate," he said.
To a good degree, the health of the labor market holds the
key to the Fed's decision on rates.
Fed Chair Janet Yellen believes there is more slack in the
jobs market than the unemployment rate alone would suggest, but
she warned earlier this month that a rate hike could come
"sooner and be more rapid than currently envisioned" if labor
markets continue to improve more quickly than anticipated.
Payrolls processor ADP said on Wednesday U.S. companies
hired 218,000 workers in July, a solid pace but a bit short of
A more comprehensive government report on Friday is expected
to show nonfarm payrolls increased by 233,000 in July, which
would mark the sixth straight month with job growth above
After a stronger-than-expected reading on employment early
this month, the median forecast of economists polled by Reuters
put the first increase in rates in the second quarter of next
year. Previously, it had been the third.
The forecast is in line with the prediction offered by
interest-rate futures, which imply an increase in June 2015.
Officials could also acknowledge a modest uptick in U.S.
prices, which has put inflation closer to the central bank's
2-percent target. Indeed, during the second quarter, inflation
logged in at a 2 percent rate.
But economists expect the Fed to hold fast to its guidance
that a "considerable time" will elapse between the end of its
bond buying and its first rate hike.
(Reporting by Michael Flaherty; Editing by Andrea Ricci and