Fed holds off on key in­ter­est rate hike

Cen­tral bank hints it may seek to raise it be­fore year’s end

Baltimore Sun - - NATION - By Martin Crutsinger

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.

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