US Fed likely to stand put on rates
WHEN the US Federal Reserve issues its next interest rate decision tomorrow, the dawn of a bitterly fought presidential election day will be only 136 hours away.
Trailing in opinion polls, Republican nominee Donald Trump has lambasted the central bank and accused it of artificially suppressing rates to help President Barack Obama – a charge Fed chair Janet Yellen has emphatically denied.
Most observers expect the Fed’s Federal Open Market Committee, which sets interest rate policy, to stand pat, seeing no pressing need to act, especially before an election.
While Fed members are divided on the dangers of inflation, the majority are expected to vote to leave rates at their historically low target range of 0.25-0.5 percent for one more month.
By law, the Fed is insulated from political pressures and its budget is not set by Congress. Analysts agree there is no sign electoral politics are influencing the Fed’s thinking.
The two-day meeting more likely will be focused on setting market and investor expectations for the final rate meeting of the year in December.
The FOMC divisions – which revealed a minority favouring rate hikes sooner rather than later to head off inflation – showed it has faced tough decisions.
So far in 2016, they have refrained from acting in order to avoid interrupting the mild recovery. Job creation has been relatively strong. But wage growth has been sluggish, so the job market has not produced unequivocal signs of inflation.
At the September meeting, policymakers said the decision not to raise rates was a “close call”. Three of the 10 voting members dissented and called for a rate hike.
Since that meeting, US economic data has remained spotty. The economy grew a robust 2.9pc in the third quarter subject to revision. A respectable 156,000 jobs were added in September, and the unemployment rate has remained steady at around 5pc.
But inflation, as measured by the Fed’s preferred personal consumption expenditures index, slowed in the July-September period to 1.4pc from 2pc in the prior quarter, which was the first time it had hit the Fed’s target since early 2014.
The Fed will have two more jobs reports – and a historic elections result – to consider before the December 13-14 meeting.
Brian Jacobsen of Wells Fargo Funds agreed there is little evidence Fed decision making has been dictated by the political calendar.
Sarah Binder, senior fellow at the Brookings Institution, said the Fed’s independence is tempered by its need to avoid political storms.
“Their life is not made any easier by becoming the target of angry lawmakers,” Ms Binder told AFP. “I think in reality the Fed needs political support to make tough choices. Getting aggressively out of synch of political and public opinion, that’s a tough thing to do.” –