US Fed keeps interest rates unchanged
WASHINGTON (Reuters) – The US Federal Reserve held interest rates steady on Thursday, but remained on track to keep gradually tightening borrowing costs, as it pointed to a healthy economy that was marred only by a dip in the growth of business investment.
Business investment can be a key to rising productivity and future growth, and the fact that it had “moderated from its rapid pace,” as the Fed said, was the only cautionary note in a policy statement that touted strong job gains and household spending, and a “strong rate” of overall economic activity.
“The labor market has continued to strengthen and ... economic activity has been rising at a strong rate,” the US central bank said, leaving intact its plans to continue raising rates at a gradual pace. The Fed has hiked rates three times this year and is widely expected to do so again in December.
The statement overall reflected little change in the Fed’s outlook for the economy since its last policy meeting in September. Inflation remained near its two percent target, unemployment fell, and risks to the economic outlook were still felt to be “roughly balanced.”
Policymakers, however, took particular note of the moderation in business investment, an important component of GDP that can spin off jobs as companies build new facilities, and raise productivity as they upgrade equipment and processes.
Boosting investment was one of the main objectives behind the Trump administration’s move to reduce the corporate tax rate as part of its restructuring of the tax code at the end of 2017.
After adding four-tenths of a percentage point to economic growth in the first six months of the year, lagging investment in “non-residential structures” trimmed a quarter of a percentage point in the annualized growth rate for the third quarter.
Financial markets, which had expected the Fed to hold its benchmark overnight lending rate steady in the current range of two percent to 2.25 percent this week, ticked lower after the statement was released.
After a stock market rout in October and signs that both housing and business investment may be waning, some analysts expected the Fed to possibly signal doubt about its next rate increase.
Yet December still seems firmly in play.
“The only surprise here is that they weren’t more hawkish,” said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York. “There were a couple words that were more muted – that business investment had ‘moderated’ from its earlier pace. But apart from that they have not signaled any warning signs at all.”
US stocks, which had rallied broadly on Wednesday after the results of the US congressional elections, turned lower as the Fed’s statement offered no indication the central bank might slow the pace of its rate increases.