FOMC announcement: Fed keeps interest rates steady

12 November, 2018, 15:58 | Author: Kevin Carter
  • Increased inflation concerns loom ahead of Fed's committee meeting

As expected, the Federal Reserve held off on raising interest rates at its policy meeting today, leaving the federal funds rate at 2 to 2 ¼%.

While household spending continues to show strong growth, business fixed investment "moderated" from the fast pace it saw at the beginning of the year.

"In view of realized and expected labor market conditions and inflation, the Committee made a decision to maintain the target range for the federal funds rate at 2 to 2 ¼ percent", the FOMC said in a statement.

"A few participants expected that policy would need to become modestly restrictive for a time and a number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level", said the minutes.

"Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate", the Federal Reserve said in a monthly statement that is closely parsed by economists and investors. It was the eighth hike since policymakers started to normalize monetary policy in late 2015.

Oil neared three-month lows, surrendering early gains as investors focused on global crude supply, which is increasing more quickly than many had expected. The 10-year Treasury note yield, a benchmark for both consumer and business borrowing costs, was 3.23 per cent, around the highest since 2011.

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Analysts will be studying the minutes of this week's meeting, to be released in three weeks, for any insight into economic threats Fed policymakers may see, such as the trade war between the United States and China.

Overall U.S. economic output expanded at a 3.5% annual rate in the third quarter after rising at a 4.2% pace in the second quarter, the Commerce Department reported last month.

In September, Fed officials penciled in plans to raise their benchmark short-term rate once more this year.

If Jerome Powell, the Fed's chairman, sounds calm about inflation, the markets will rally. The central bank will hold its next policy meeting on December 18-19. Some believe there will be four hikes in 2019 as the Fed responds to continued strong growth while some see only one or two hikes next year as the boost from the $1.5 trillion in tax cuts passed last year begins to fade.

Data released in late October showed the US economy grew at a 3.5 percent annual rate in the third quarter, well above the roughly 2 percent annual growth pace the Fed and many economists regard as the underlying trend.

"We consider the best thinking, the best theory, and the best evidence. we don't consider political factors or things like that", Powell told reporters at a press conference in September.



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