Fed holds off on key interest rate hike
Central bank hints it may seek to raise it before year’s end
WASHINGTON — The Federal Reserve is keeping its key interest rate unchanged but signaling that it will likely raise rates before year’s end.
The Fed said in a statement ending its latest policy meeting Wednesday that the U.S. job market has continued to strengthen and economic activity has picked up. But it noted that business investment remains soft and inflation too low and that it wants to see further improvement in the job market.
The central bank characterized the near-term risks to its economic outlook as “roughly balanced.” It was the first time it has used that wording since late last year, when it most recently raised rates. Most analysts have said they think the Fed will next raise rates in December.
The Fed said its policy committee had concluded that while “the case for an increase in the federal funds rate has strengthened,” it would, for the time being, “wait for further evidence of continued progress toward its objectives.”
“The Fed appears to be firmly on track for a December hike,” Paul Ashworth, chief U.S. economist at Capital Economics, said after the statement was issued.
Stock prices rose in the hour after the Fed issued its statement and during a news conference by Chair Janet Yellen that laid out her case for holding off on a rate hike for now. In her news conference, Yellen offered a simple explanation for why the Fed didn’t raise rates: The economy can still grow without hurting itself.
The Fed chair noted that historically low rates haven’t caused the economy to overheat as some analysts feared they would. Steady job gains have pulled discouraged workers back into the job market, and yet inflation remains below the Fed’s 2 percent target rate.
“The economy has a little more room to run than previously thought,” Yellen said.
The Fed made clear in forecasts it issued Wednesday that it expects growth to remain tepid for the next three years. It expects the economy to expand 1.8 percent this year and by an almost equally sluggish 2 percent in 2017 and 2018.
For the first time in nearly two years and for the first time since Yellen became Fed chair in February 2015, there were three dissents to the Fed’s statement.
The three officials are all presidents of regional Fed banks — Esther George of Kansas City, Mo., Loretta Mester of Cleveland and Eric Rosengren of Boston. All wanted the Fed to raise its key rate at this meeting.
The Fed’s next meeting is a week before the November elections, and most analysts think it wouldn’t want to raise rates so close to when voters go to the polls.