US Fed declines to raise rates
THE Federal Reserve expressed growing confidence in the health of the US economy on Wednesday but still declined to raise interest rates, declaring that the case for an increase “has strengthened” but that it would wait “for further evidence of continued progress” towards higher growth and faster inflation.
The decision suggests the Fed believes the US economy has sailed safely through headwinds that worried officials earlier this year, including possible damage from Great Britain’s vote to exit the EU. It appears to be a step towards raising rates soon, though vague on the question of when that increase might come this year.
America’s job market “has continued to strengthen”, Fed officials said in a statement, “and the growth of economic activity has picked up from the modest pace seen in the first half of the year”.
Highlighting a growing split on the Federal Open Market Committee, three regional Fed presidents dissented from the decision: Esther George of the Kansas City Fed, Loretta Mester of the Cleveland Fed and Eric Rosengren of the Boston Fed. All of them favoured an immediate move to raise rates. In July, only George broke from the decision to hold rates just above zero.
Reserve officials also indicated that they still expect interest rates to rise by year’s end, though not as quickly as they had previously expected. They now expect rates to hit 1.1 percent at the end of 2017, down from a forecast of 1.6 percent in June. The outlook for the end of 2018 also fell by a half-point to 1.9 percent.
Markets and Fed-watching economists had anticipated Wednesday’s move, after Fed Chair Janet Yellen and other top officials at the nation’s cen- tral bank sent strong hints in recent speeches that rates were unlikely to budge this month.
The decision, at the end of a two-day meeting in Washington, leaves open the question of whether the committee might raise rates when it next meets in October, shortly before the US presidential election. Many Fed-watchers had expected no rate increases until November.
It appears likely to draw fire from Republican presidential nominee Donald Trump, who has accused the Federal Reserve of keeping rates artificially low to boost President Barack Obama and Democratic nominee Hillary Clinton.
The board members also issued updated forecasts for growth and inflation on Wednesday, and they were little changed from June. The median forecaster on the board now expects the US economy to grow 1.8 percent this year, down from 2 percent in June, and the unemployment rate to finish the year at 4.8 percent.
Inflation for the year is now expected to register at 1.3 percent, down slightly from June’s projections and still well short of the Fed’s 2 percent inflation target. Core inflation, which excludes more volatile prices such as energy, is expected to hit 1.7 percent for this year.
Other central banks are moving to ease monetary policy, not tighten it, in the face of weak growth. Earlier in the day, the Bank of Japan announced new steps in an attempt to stoke inflation and growth.