Fed leaves interest rate unchanged
The Federal Reserve on Wednesday voted to keep a key interest rate unchanged and said it would begin rolling back its massive balance sheet “relatively soon” at the conclusion of its two-day meeting in Washington.
Investors had widely expected no changes to the Fed’s interest rate, which helps set the cost of borrowing and lending around the country. The central bank hiked its benchmark interest rate by a quarter-point to between 1 percent and 1.25 percent in June, the third such hike in six months, and investors expect another move in December.
With the U.S. economy chugging along for many months, the Fed has been gradually easing off the stimulus it provides to the economy by raising interest rates to more normal levels. Yet so far the cost of lending has been slow to respond to the interest rate increases. But as the Fed continues with this policy, consumers who borrow to buy major goods will have to pay more for them.
The central bank is also soon expected to introduce its plan to roll back its $4.5 trillion balance sheet it has accumulated since the recession, a change that could also help push up interest rates.
The Fed suggested that it is keeping an eye on persistently low inflation and indicated that it would soon introduce its balance sheet plan. The Fed also said that it would maintain its existing policy of reinvesting the money it receives when the debt and securities it holds mature into new assets “for the time being.”
The central bank probably wants to begin this process before it could face a major leadership shakeup as Janet Yellen’s position as chair expires early next year.
President Donald Trump said this week he would consider reappointing Yellen when her term ends Feb. 3, but he also said that National Economic Council Director Gary Cohn was a candidate for the position.
Randy Quarles, a former Treasury official whom Trump has picked for one of three empty spots on the Fed’s board, will go before the Senate Committee on Banking, Housing and Urban Affairs on Thursday in a nomination hearing.
On Wednesday, U.S. stock indexes inched further into record territory after AT&T, Boeing and others joined the parade of big companies reporting stronger profits than analysts expected.