FED DECIDES TO GO SLOWLY
Yellen declines to raise rates
Federal Reserve watchers have begun circling Dec. 13 and 14 on their calendars.
With a decision to forgo a hike in its key interest rate on Wednesday — and the U.S. presidential election coming just days before the central bank’s next two-day policy meeting in November — the betting is now on the long-promised re-launch being pushed back to the final month of 2016.
Even so, the timing of the next rate move may not be a unanimous decision. Three members of the Federal Open Market Committee voted to begin lifting rates now.
“We are generally agreed that gradual increases in the federal funds rate, to remove what is a modest degree of accommodation, will be appropriate,” Fed chairperson Janet Yellen told reporters in Washington.
“But it would be sensible, given the finding of a bit more running room, to wait to see some continued progress, evidence that we continue to progress toward our objectives,” she said.
“So, for the time being, we’re going to watch incoming evidence ... and most (Fed) participants do expect that one increase in the federal funds rate will be appropriate this year. And I would expect to see that if we continue on the current course of labour market improvement and there are no major new risks that develop.”
If that is the case, she added, the Fed will “simply stay on the current course” of higher lending levels.
Yellen and other members of the Federal Open Market Committee “made it about as clear as they possibly could that they are on track to hike at the first realistic opportunity, which is the December meeting,” said Douglas Porter, chief economist at BMO Capital Markets in Toronto.
“It’s incredibly tough to believe they would seriously consider raising rates a week before the U.S. election. So, that leaves December as the most likely candidate,” Porter said. “But a lot can happen between now and then. We do have an election to get through and I would say the (economic) data have to get a little bit better than what we’ve seen over the past month.”
True, the U.S. economy has not been performing up to its ability, and that has kept the Fed on the sidelines far longer than the central bank had anticipated for rate hikes this year.
Initially, the FOMC chalked out a course of four rate increases in 2016 — counting on the momentum of the economy toward the end last year to continue, which encouraged policy-makers to hike their lending level by 25 basis points to a range of between 0.25 and 0.50 per cent in December.
That marked the first adjustment in more than a half dozen years.
But renewed concern over a slowdown in growth in China and a collapse in global oil prices — together with recent volatility related to Britain’s decision to leave the European Union — kept the Fed on the sidelines.
The Bank of Canada will update its growth projections on Oct. 19, the same day it issues the next rate decision.