Fed leaves key rate unchanged but hints at future hikes
WASHINGTON — With a new Federal Reserve leader about to be announced, the Fed is keeping its key interest rate unchanged. But it is hinting that it’s preparing to resume raising rates as the economy shakes off the effects of recent hurricanes.
In a statement after its latest policy meeting ended Wednesday, the Fed left its benchmark rate in a low range of 1 percent to 1.25 percent. With the economy on solid footing, the Fed is expected to raise rates for the third time this year when it next meets in December.
Overall, the Fed’s statement suggested a bright economic outlook, with steady if unspectacular growth and a healthy job market. It noted that a loss of U.S. jobs in September was directly related to disruptions from hurricanes Harvey and Irma. Economists have projected that on Friday the government will report a job gain of 310,000 for October — a dramatic rebound.
It addition, the Fed said that a rise in gasoline prices after the hurricanes would likely prove temporary and that overall price increases remain generally soft. It reiterated its expectation that prices will resume picking up toward its 2 percent inflation target.
The central bank remains confident, the statement said, that the strength of the job market and the overall economy will justify further gradual increases in interest rates.
“The uncertainty about the economic impact of hurricanes has subsided, and the Fed noted the strengthening economy by saying it is expanding at a ‘solid rate,’ ” said Greg McBride, chief financial analyst at Bankrate. “If that’s not a prerequisite for an interest rate hike next month, I don’t know what is.”
New Fed chair
President Donald Trump has said he will announce on Thursday his choice to lead the Fed beginning in February. Jerome Powell, a Fed board member, is assumed to be the top contender.
“I think you will be extremely impressed by this person,” Trump said Wednesday.
Trump’s announcement will be scrutinized for what it might mean for the direction of interest rates, and perhaps for the economy. In selecting Powell, Trump would be deciding against offering a second term to Yellen, who has drawn wide approval for her performance as chair. The first woman to lead the Fed, Yellen would also be the first leader of the central bank in decades not to be offered a second term after serving a full first term.
Powell has built a reputation as a centrist policymaker whose stance on interest rate increases would likely deviate little from Yellen’s cautious approach. Powell would, though, be expected to be marginally more favorable toward easing some of the stricter financial rules that were enacted after the 2008 financial crisis. Trump has complained that those rules have been too restrictive.
In its statement Wednesday, the Fed noted the chronic problem of ultralow inflation. The problem with too-low inflation is that it can slow the economy by causing consumers to delay purchases if they think they can buy a product or service for a lower price later.
And so far this year, inflation has actually been slowing. The trend that has raised doubts about whether, as the Fed has suggested, lower-thanoptimal inflation reflects mainly temporary factors, such as a price war among cellphone service providers, or rather something more fundamental.