Fed tipped to act soon
> US central bank says case for raising interest rates stronger but wants to see further economic progress first
WASHINGTON: The US Federal Reserve said on Wednesday the case for raising interest rates has strengthened further with improving economic conditions, but monetary policymakers decided to wait for more progress before acting.
Just a few days before the bitterly-contested presidential election, the US central bank kept the benchmark interest rate at the same level where it has been since December 2015, a move universally expected by analysts.
However, the Fed, while not explicit on the timing, left the door open to a rate hike soon, possibly in the next meeting on Dec 13-14. But analysts were divided over how to interpret the hints given by the Federal Open Market Committee (FOMC), the Fed’s monetary policy arm.
The key rate has been at 0.25-0.5% for nearly a year, after spending the years since the 2008 crisis at zero. The rate is the benchmark for many types of credit, including home mortgages and car loans.
Early this year the central bankers said they expected several rate cuts before 2017, but have held off over concerns of derailing a fragile economic recovery.
Two FOMC members dissented on the decision, favouring an immediate rate increase: the Federal Reserve Bank presidents of Kansas City, Esther George, and Cleveland, Loretta Mester. In September there were three dissents.
Their policy statement noted continued improvement in the labour market and economic growth, as well as slight increases in inflation, a key focus of the FOMC.
“The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives,” the FOMC said.
Many economists believe there is a strong chance the Fed finally will raise rates at the December meeting, when it will have the benefit of two more months of inflation and employment data – not to mention the outcome of the election.
“We fully expect this evidence to emerge over the next six weeks, so only a shock – the election of (Donald) Trump, or an external geopolitical or market event – can now prevent a December hike,” Ian Shepherdson of Pantheon Macroeconomics said in a research note.
However, Jason Schenker of Prestige Economics said “there was no signal of an imminent rate hike for December.”
And Jim O’Sullivan of High Frequency Economics said the Fed did not “send any definitive signal in the statement about December.” – AFP