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The Federal Reserve held off hiking interest rates 
The Fed will take a wait-and-see attitude at this week's FOMC meeting. Although the central bank is likely to sound mildly dovish, acknowledging the increased risks to the outlook posed by the recent tightening of financial conditions, it is unlikely at this point to give any clear hints about the likely outcome of the March meeting. For now, the baseline scenario is still that the next hike will be in March, but it has become a close call.
With rising concerns about China, the renewed plunge in oil prices and the increasing probability of a sharp (partly inventory-driven) slowdown in US GDP growth in Q4, the FOMC will take a "wait-and-see" attitude at this week's meeting, which concludes on Wednesday.
Although the Fed is likely to acknowledge the increased risks to the outlook posed by the recent tightening of financial conditions, the central bank is unlikely to provide clear guidance as to whether it has changed its plans for the tightening pace during in 2016.
"We expect no clear hints about the likely outcome of the March meeting. In December, the Fed's dot plot pointed to four 25 bp rate hikes this year", says Nordea Bank.
Thus no major changes are expected to the Fed's forward guidance, as the Fed will attempt to keep its options open. While the FOMC statement is likely to show a mild downgrade of the Fed's economic assessment, any appearance of regret about its decision to hike rates in December will be avoided. There is no compelling evidence of a significant weakness in the US economic outlook since then. With regard to the recent tightening of financial conditions, the Fed's approach is that only persistent changes perceived to have significant bearing on the longer-term outlook would have implications for the policy outlook.
