Fed Holds Rates Steady And Signals More Rate Increases Ahead

Ivan Schwartz
November 12, 2018

The Federal Reserve opted not to change interest rates Thursday but hinted that rates are likely to rise in December.

The economy otherwise has been humming along strongly, and the FOMC reiterated its belief that "economic activity has been rising at a strong rate". A statement it issued Thursday after its latest policy meeting portrayed the economy as robust, with healthy job growth, low unemployment, solid consumer spending and inflation near the Fed's 2 percent target.

Investors widely expect policymakers to keep the target range steady for the federal funds rate, after officials at the USA central bank raised it in September for the third time this year.

"Interest rates are still accommodative, but we're gradually moving to a place where they will be neutral", Powell said during an interview with PBS.

"The labour market has continued to strengthen and. economic activity has been rising at a strong rate", the United States central bank said, leaving intact its plans to continue raising rates at a gradual pace. Officials are equally split over whether to raise rates two, three or four more times next year. The interest rate the Fed pays banks on excess reserves was left unchanged at 2.2%, as expected, Economic Times reported.

That could be viewed as an indication the Fed could move more cautiously, with fewer than the expected three rate hikes next year. Traders now are pricing in just two rates hikes next year. Given how upbeat the Fed's assessment of the economy is, Wall Street thinks a December rate hike is nearly certain.

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The Federal Reserve said Friday it will begin issuing a new report twice a year assessing the stability of the US financial system.

President Donald Trump has repeatedly berated the Fed for hiking rates too quickly, which he fears will harm economic growth, but the Fed remains committed to getting interest rates back to more normal levels given how well the economy is doing now.

Since Fed officials met in late September, "the labor market continues to strengthen", the statement read.

"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. "The target range for the federal funds rate will likely remain at 2 to 2.25 percent for now after the third boost of the year in September".

The Fed's decision Thursday was approved 9-0 by its voting policymakers.

While Trump has called the Fed's rate hikes his "biggest threat", Powell, who was Trump's hand-picked choice to lead the Fed, has avoided responding directly to the criticism.

Other reports by GizPress

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