Fed holds rates un­changed ahead of an ex­pected hike in De­cem­ber

Cen­tral Bank says eco­nomic ac­tiv­ity ris­ing at strong rate

The Mercury News Weekend - - DATA - By Craig Tor­res Bloomberg News

The Fed­eral Re­serve left in­ter­est rates un­changed and stayed on course to hike in De­cem­ber de­spite re­cent jit­ters in fi­nan­cial mar­kets and a crit­i­cal pres­i­dent.

The U. S. cen­tral bank said “eco­nomic ac­tiv­ity has been ris­ing at a strong rate” and job gains “have been strong,” ac­knowl­edg­ing a drop in the un­em­ploy­ment rate, while re­peat­ing its out­look for “fur­ther grad­ual” rate in­creases in its state­ment Thurs­day fol­low­ing a two- day meet­ing in Wash­ing­ton.

Risks to the out­look ap­pear “roughly bal­anced,” the Fed­eral Open Mar­ket Com­mit­tee said, leav­ing that lan­guage un­changed from the prior meet­ing in late Septem­ber. In­fla­tion ex­pec­ta­tions, which have slipped slightly in re­cent weeks ac­cord­ing to some mea­sures, were de­scribed as “lit­tle changed, on bal­ance,” the same as in the last state­ment.

“Ab­sent any­thing new be­tween now and the last meet­ing of the year, they’ll con­tinue on with an­other 25- ba­sis- point in­crease” in De­cem­ber, said James Kahn, an eco­nom­ics pro­fes­sor at Yeshiva Uni­ver­sity and a for­mer vice pres­i­dent at the New York Fed. “The lan­guage is de­signed to try to not look too far ahead,” to give them flex­i­bil­ity, he said.

By keep­ing the door open to a fourth 2018 hike in De­cem­ber, of­fi­cials are stick­ing to their grad­ual up­ward path, try­ing to pro­long the sec­ond- longest U. S. ex­pan­sion on re- cord with­out mak­ing an er­ror. Leav­ing mone­tary pol­icy too loose risks stok­ing ex­cess in­fla­tion and as­set bub­bles, while tight­en­ing too fast could cause a re­ces­sion.

The unan­i­mous 9- 0 de­ci­sion left the bench­mark fed­eral funds rate in a tar­get range of 2 per­cent to 2.25 per­cent, fol­low­ing eight quar­ter-point hikes since late 2015. The in­ter­est rate the Fed pays banks on ex­cess re­serves -- a tool for keep­ing the ef­fec­tive funds rate within the Fed’s tar­get range — was left un­changed at 2.2 per­cent, as ex­pected.

Stocks slipped and the dol­lar ex­tended gains af­ter the de­ci­sion was an­nounced, with the S& P 500 In­dex clos­ing 0.3 per­cent lower at 2,806.83. Tenyear Trea­sury yields were slightly higher at 3.24 per­cent at 4:15 p.m. in New York.

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