Fed leaves rates unchanged, signals December hike

Anna Jefferson
November 12, 2018

The US Federal Reserve on Thursday left key interest rates unchanged, in line with market expectations, keeping the central bank on track to have one more rate hike in December.

It said the job market has continued to strengthen and noted that economic activity has been rising "at a strong rate". A statement it issued 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.

Shortly after the US midterm elections, the US Federal Reserve voted to keep the benchmark interest rate the same at 2 to 2.25 percent.

The Fed's policy statement did not explicitly take stock of recent volatility in USA equity markets that led to a selloff in October, or address the possibility of a slowdown in global growth next year.

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Economists nearly unanimously expect the fourth rate increase of the year in December but with a recent report showing wages finally beginning to rise they are watching for indications about the likely pace of rate hikes in 2019.

Michael Pearce, senior USA economist with Capital Economics, thinks that would be followed by two more rate hikes in the first half of 2019.

Meantime, the unemployment rate held at 3.7% in October, a half-century low, and wages rose 3.1% on the year, the biggest year-over-year increase since 2009.

The quickened pace of economic growth - a 3.5 percent annual rate in the July-September quarter, after a 4.2 percent rate the previous quarter - has raised the risk that inflation could begin accelerating.

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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.

As it happens, this week's meeting will be the last that will not include a news conference by the Fed chairman. "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". Conversely, should recent trends start to stall, it will point to a potential turn in the outlook for GDP growth and inflation, a scenario that will likely see the Fed change direction in terms of the outlook for policy settings.

Trump is widely expected to keep criticizing the Fed for rising rates, but so far Powell has stayed on course and avoided firing back. Trump's public criticism has aroused concern that he is intruding on the central bank's long-respected political independence and its need to operate free of outside pressure.

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