The Fed decides against an interest rate hike but doesn’t rule one out later this year.
WASHINGTON — The Federal Reserve announced Wednesday that it is not ready to raise interest rates, completing a seventh year in which it has held short-term rates near zero.
But the Fed’s statement, issued after a two-day meeting, left open the possibility that the Fed will raise rates at its final meeting of the year, in December. While noting that job growth has slowed, it said that other economic indicators remained relatively strong.
The Fed also signaled that its concerns about the global economy have diminished. In the statement issued after its previous meeting in September, the Fed said global economic and financial developments might restrain domestic growth. That language was stripped from the new statement, leaving only an acknowledgment that the Fed “is monitoring global economic and financial developments.”
The decision to keep rates near zero was supported by nine of the 10 members of the Federal Open Market Committee. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, Va., once again dissented.
The Fed has kept the target for its benchmark funds rate at a record low in a range of zero to 0.25 percent since December 2008. The Fed’s assessment of the domestic economy has remained relatively constant in recent months. The question is whether that pattern of relatively modest but steady growth will continue.
The central bank’s statement also said that Fed officials are still confident in their forecast that the labor market will continue to improve, and that inflation will eventually begin to rise. That forecast remains the Fed’s basic rationale for considering a rate hike in the near future.
On Wall Street Wednesday, stocks initially gave up some of their early gains after the Fed’s announcement but then surged at the end of trading.
The looming question now is whether the Fed will raise rates at its final meeting of the year, on Dec. 15-16. The Fed’s chairwoman, Janet Yellen, said in a September speech that she still expected to raise rates this year, as long as economic growth continued.
The case for raising rates hinges in part on the Fed’s forecast that the economy will continue to add jobs at a healthy pace and that inflation will begin to rise more quickly. Fed officials also want to raise rates slowly, to minimize economic disruptions, and starting early could help.
But Yellen is facing increasingly vocal opposition to moving rates higher in 2015. Liberal economists and activists have argued it would be premature to raise rates, because millions are still looking for jobs and there are no signs that inflation poses a threat. Low interest rates tend to encourage borrowing, in that way supporting growth; higher rates, by contrast, are likely to weigh on growth.