Fed Stands Pat on Interest Rates Ahead of Expected December Hike (Bloomberg)
Last Modified: 02:31 PM, Thu Nov 08, 2018

The Federal Reserve left interest rates unchanged today and stayed on course to hike in December as strong economic growth, higher tariffs and rising wages look set to spur inflation. It said "economic activity has been rising at a strong rate" and job gains "have been strong," acknowledging a drop in the unemployment rate, while repeating its outlook for "further gradual" rate increases. Risks to the outlook appear "roughly balanced," it said, leaving that language unchanged from the prior meeting in late September. Inflation expectations were described as "little changed, on balance," the same as in the last statement. The unanimous 9-0 decision left the benchmark federal funds rate in a target range of 2% to 2.25%, following eight quarter-point hikes since late 2015. The interest rate the Fed pays banks on excess reserves was left unchanged at 2.2%, as expected.

Fed Stands Pat on Interest Rates Ahead of Expected December Hike
2018-11-08 

By Craig Torres

(Bloomberg) -- The Federal Reserve left interest rates
unchanged and stayed on course to hike in December as strong
economic growth, higher tariffs and rising wages look set to
spur inflation.

The central bank said "economic activity has been rising at
a strong rate" and job gains "have been strong," acknowledging a
drop in the unemployment rate, while repeating its outlook for
"further gradual" rate increases in its statement Thursday
following a two-day meeting in Washington.

Risks to the outlook appear "roughly balanced," the Federal
Open Market Committee said, leaving that language unchanged from
the prior meeting in late September. Inflation expectations,
which have slipped slightly in recent weeks according to some
measures, were described as "little changed, on balance," the
same as in the last statement.

By keeping the door open to a fourth 2018 hike in December,
officials are sticking to their gradual upward path, trying to
prolong the second-longest U.S. expansion on record without
making an error. Leaving monetary policy too loose risks stoking
excess inflation and asset bubbles, while tightening too fast
could cause a recession.

The unanimous 9-0 decision left the benchmark federal funds
rate in a target range of 2 percent to 2.25 percent, following
eight quarter-point hikes since late 2015. The interest rate the
Fed pays banks on excess reserves -- a tool for keeping the
effective funds rate within the Fed's target range -- was left
unchanged at 2.2 percent, as expected.

Business Investment


In one of the only other tweaks to the statement, the FOMC
said growth in business fixed investment has "moderated from its
rapid pace earlier in the year," compared with the previous
assessment that it has "grown strongly." Third-quarter data
showed non-residential investment increased at the slowest pace
in almost two years.

Meanwhile, household spending "has continued to grow
strongly," the Fed said, echoing its previous assessment of
consumption, which accounts for about 70 percent of the economy.
Chairman Jerome Powell and colleagues are feeling their way
toward a more normal policy setting after years of extraordinary
stimulus.

The tightening cycle may be crimping some segments of the
economy. U.S. stocks suffered their steepest losses last month
since 2011 in part because of concern the Fed could slow the
economy too much. Sales of previously-owned homes were down 4.1
percent in September from a year earlier, and the cost of a 30-
year fixed mortgage hit an eight-year high last week.

The task of getting policy right is also complicated by
harsher political scrutiny. President Donald Trump criticized
past rate shifts and blamed the Fed for the market meltdown in
advance of this week's midterm elections, which delivered
control of the House of Representatives to Democrats.

Trade, Fiscal


A year since being nominated by Trump to helm the Fed,
Powell is overseeing an economy in a sweet spot: It grew 3
percent over the past four quarters, and for the first time
since the Fed introduced its 2 percent inflation objective in
2012, both the headline and core measures of year-on-year price
changes hit the goal in September. 

Unemployment is at 3.7 percent, the lowest in 48 years,
while rising wages and demand for labor are pulling more people
into the workforce, helping offset retirements by baby boomers.
Fed officials will update their forecasts in December
having previously penciled in three increases in 2019, which
would put the main rate roughly at levels that policy makers see
as neither boosting nor restraining the economy.

Thursday's Fed decision will be the last one without a
press conference by the chairman. Powell's final regularly
scheduled quarterly briefing will occur after December's
gathering, and in 2019 he will begin speaking to reporters after
every FOMC meeting.

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