Fed leaves key rate unchanged
WASHINGTON — The Federal Reserve has left its key policy rate unchanged but signaled that it plans to keep responding to the strong U.S. economy with more interest rate hikes. The next rate increase is expected in December.
The Fed kept its benchmark rate in a range of 2 percent to 2.25 percent. A statement it issued Thursday after its latest policy meeting portrayed the economy as robust, with healthy job growth, low unemployment, solid consumer spending and inflation near the Fed’s 2 percent target.
Despite a U. S. trade war with key nations, weaker corporate investment and a sluggish housing market, the Fed is showing confidence in the economy’s resilience. To help control inflation, it has projected three rate increases in 2019 after an expected fourth hike of the year next month.
Analysts saw the central bank’s decision to highlight the economy’s strength and to make few changes in its policy statement as a sign that it remains on track to raise rates next month.
“The Fed’s economic assessment remains very upbeat, noting declining unemployment and continued strong growth,” said Greg McBride, Bankrate. com’s chief financial analyst. “All signs point to a rate hike at the December meeting.”
The Fed’s decision Thursday was approved 9- 0 by its voting policymakers. Its brief statement was nearly identical to the one the Fed issued in September. It said the job market has continued to strengthen and noted that economic activity has been rising “at a strong rate.”
In one of its few changes, the Fed downgraded its assessment of business investment spending, observing that it had slowed from its pace earlier in the year.
The Fed did not specify any risks to the economy it perceives.
Analysts will be studying the minutes of this week’s meeting, to be released in three weeks, for any insight into economic threats Fed policymakers may see, such as the trade war between the United States and China.
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.
Some economists foresee only two Fed rate hikes next year.
Others expect that economic growth will 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.
Last week, 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.