Why Fed is Likely to Remain on Hold

The Federal Reserve meets in the coming week against the backdrop of an improving employment picture, making further monetary easing less likely for now.

The February employment report Friday showed a better-than-expected 227,000 nonfarm payrolls were created, and revisions showed another 60,000 workers were added in December and January.

“It’s enough to sustain the economic momentum and keep the Fed on the sidelines … I think the market is now waiting for the next thing,” said Jeffrey Kleintop, chief market strategist at LPL Financial.

The Fed will probably keep the door open to more easing, but it is not expected to advance the idea. Fed Chairman Ben Bernanke, in Congressional testimony earlier this month, suggested the Fed does not, for now, have to do a third round of quantitative easing, or purchase securities in an effort to drive down interest rates. The Fed had put that option on the table, and before Bernanke spoke, some market participants had expected the Fed to act sooner rather than later.

Besides the Fed’s Tuesday meeting, market focus will be on a flood of February economic readings, including retail sales, inflation, consumer sentiment and industrial production. Also important will be weekly jobless claims, which rose slightly in the past week. The markets will also be waiting to see if there are any unexpected aftershocks from Greece’s private sector debt restructuring.

Markets will also be watching the consumer price index . While the Fed favors the PCE inflation measure, CPI should show some impact from rising gasoline prices when it is reported Friday. Inflation above the Fed’s targeted 2 percent by its measure, would keep easing off the table, and the CPI could give hints of that.