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.

Pol­i­cy­mak­ers point to strong job gains, house­hold spend­ing

The Korea Times - - FRONT PAGE - WASH­ING­TON (AP)

— 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,’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 near- ly 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 justi- fied 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.

Even af­ter three in­creases this year, the Fed’s bench­mark rate is still low by his­tor­i­cal stan­dards. The cen­tral bank’s pol­i­cy­mak­ers have stressed, and most econ­o­mists agree, that th­ese small quar­ter-point in­creases amount to a grad­ual pace of credit tight­en­ing.

Still, the Fed’s bench­mark rate af­fects many con­sumer and busi­ness loans, in­clud­ing mort­gages and credit cards, and when it raises it, bor­row­ing can be­come more ex­pen­sive for many. Savers, though, typ­i­cally earn more on their cash de­posits as in­ter­est rates rise.

Since the stock mar­ket started tum­bling last month, Pres­i­dent Don­ald Trump has at­tacked the Fed’s rate hikes as well as Pow­ell’s lead­er­ship. Trump’s pub­lic crit­i­cism has aroused con­cern that he is in­trud­ing on the cen­tral bank’s long-re­spected po­lit­i­cal in­de­pen­dence and its need to op­er­ate free of out­side pres­sure.

At the same time, the ner­vous­ness among stock in­vestors re­flects the re­al­ity that the Fed’s steady march to­ward higher rates is re­mov­ing a key fac­tor that has un­der­pinned the bull mar­ket in stocks: The richer re­turns that in­vestors could achieve in stocks than in bonds or sav­ings ac­counts.

Fed crit­ics had charged that the cen­tral bank was cre­at­ing a bub­ble in stocks that would even­tu­ally pop with dis­as­trous re­sults. Trump, who has of­ten in­voked high stock prices as ev­i­dence that his eco­nomic poli­cies are suc­ceed­ing, has made clear his dis­agree­ment.


Spe­cial­ist Jef­frey Berger works at his post on the floor of the New York Stock Ex­change as the rate de­ci­sion of the Fed­eral Re­serve is an­nounced, Thurs- day. The Fed­eral Re­serve is leav­ing its key pol­icy rate un­changed.

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