The Atlanta Journal-Constitution
Fed likely to keep rates on hold — for this month
WASHINGTON — With the economy strong, wages rising and unemployment at a near-fivedecade low, the Federal Reserve remains on track to keep raising interest rates — just not this week.
After the Fed’s latest policy meeting, it’s expected to signal a healthy outlook for the economy but to hold off on any further credit tightening, most likely until December. A rate hike in December would mark the fourth this year.
Further rate increases are expected in 2019, though just how many is a subject of speculation. On the eve of Congress’ midterm elections, the U.S. economy remains vigorous even in its 10th year of expansion — the second-longest such stretch on record.
In deciding how fast or slowly to keep raising rates, the Fed will be monitoring the pace of growth, the job market’s strength and gauges of inflation for clues to how the economy may evolve in the coming months. The brisk pace of economic growth — a 3.5 percent annual rate in the July-September quarter, after a 4.2 percent rate in the previous quarter — has raised the risk that inflation could begin accelerating.
In its most recent forecast, the Fed projected that it would raise rates three additional times in 2019. Some economists, though, foresee only two hikes. Others expect economic growth to remain solid and the job market strong and that the Fed will decide that four rate increases will be justified next year to guard against high inflation. At 3.7 percent, the unemployment rate is already at its lowest level since 1969.
“The Fed is going to have to continue raising rates next year because the unemployment rate is going to keep falling to close to 3 percent, well beyond full employment,” said Mark Zandi, chief economist at Moody’s Analytics. “There is nothing but green lights for more rate hikes straight ahead.”
On Friday, the government reported that the economy added a sizable 250,000 jobs in October and that average pay rose 3.1 percent over the previous 12 months — the sharpest year-over-year gain in nearly a decade. That’s welcome news for workers. But it’s a trend that may raise concern that accelerating wages will help fuel undesirably high inflation.
Chairman Jerome Powell has stressed that the Fed is determined to follow a middle-of-the-road approach: Keep gradually nudging up rates to control inflation but avoid tightening too aggressively and perhaps triggering a recession.
“They are walking a tightrope,” said Diane Swonk, chief economist at Grant Thornton.
The Fed has raised rates three times this year, lifting its benchmark rate to a range — 2 percent to 2.25 percent — that is still low by historical standards. Most economists think the statement the Fed will issue Thursday after its policy meeting ends will hint of another imminent increase, likely in December.
The Fed’s policymakers have stressed, and most economists agree, that these small quarter-point increases amount to a gradual pace of credit tightening. But President Donald Trump has sharply disagreed, and since the stock market started tumbling last month, he has attacked the Fed’s rate hikes as well as Powell’s leadership.