Fed keeps key rate steady; an­other hike likely next month

Lodi News-Sentinel - - BUSINESS - By Jim Puzzanghera

WASH­ING­TON — Fed­eral Re­serve of­fi­cials held a key in­ter­est rate steady Thurs­day and ap­peared to stay on course for an­other hike next month de­spite crit­i­cism from Pres­i­dent Trump and a new con­cern about busi­ness spend­ing.

An­a­lysts had ex­pected the Fed to hold the tar­get of its bench­mark short-term rate at be­tween 2 per­cent and 2.25 per­cent af­ter con­clud­ing a two-day mone­tary pol­icy meet­ing this week. The rate had been inched up 0.25 of a per­cent­age point in Septem­ber, the third such hike this year.

Fed of­fi­cials voted 9-0 Thurs­day to keep the fed­eral funds rate at its cur­rent level.

In a post-meet­ing state­ment, they said that U.S. eco­nomic ac­tiv­ity “has been ris­ing at a strong rate,” the la­bor mar­ket con­tin­ues to strengthen and house­hold spend­ing is grow­ing strongly. But they added a new note of cau­tion.

Fixed busi­ness in­vest­ment “has mod­er­ated from its rapid pace ear­lier in the year,” the state­ment said. In re­cent months, Fed state­ments have noted that spend­ing was grow­ing “strongly.”

The new char­ac­ter­i­za­tion, which re­flects re­cent eco­nomic data, could in­di­cate Fed of­fi­cials are con­sid­er­ing slow­ing the pace of rate hikes if the trend con­tin­ues.

Fed of­fi­cials have in­di­cated they would en­act four small hikes this year and three more next year to push the rate over 3 per­cent, which still would be low for a ro­bust eco­nomic ex­pan­sion.

In­vestors are bet­ting the next hike will come at the cen­tral bank’s Dec. 18-19 meet­ing even though Trump has said he’s not happy that the rate has been ris­ing in the face of strong eco­nomic growth.

The Fed’s chair­man, Jerome H. Pow­ell, was hand­picked by Trump and took over in Fe­bru­ary. Fed mone­tary pol­i­cy­mak­ers ad­just the rate based on eco­nomic con­di­tions. They lower it when growth is slow to stim­u­late spend­ing and raise it when growth strength­ens to keep the econ­omy from push­ing up prices too quickly.

Trump fre­quently has crit­i­cized the in­de­pen­dent Fed as it has slowly moved up its bench­mark short-term in­ter­est rate. Pres­i­dents his­tor­i­cally have re­frained from pub­licly com­ment­ing on the Fed’s mone­tary pol­icy to avoid giv­ing in­vestors the im­pres­sion that pol­i­tics is in­flu­enc­ing in­ter­est rate de­ci­sions.

Be­fore Trump, the last time a pres­i­dent pub­licly crit­i­cized the Fed was in 1992.

Last month, Trump amped up his de­nun­ci­a­tion of the Fed, say­ing it “has gone crazy” and ac­cus­ing of­fi­cials of trig­ger­ing a fi­nan­cial mar­ket sell-off by fol­low­ing a longtele­graphed plan to slowly raise the bench­mark rate as eco­nomic con­di­tions im­proved.

An­a­lysts said that Trump’s poli­cies, such as the trade war with China, were a big­ger fac­tor in the mar­ket volatil­ity than the Fed’s ac­tions.

Eco­nomic growth slowed in the third quar­ter to an an­nual pace of 3.5 per­cent from 4.2 per­cent the pre­vi­ous quar­ter. Growth is ex­pected to slow fur­ther in the fourth quar­ter as the stim­u­lus fades from the tax cuts that took ef­fect on Jan. 1.

But the econ­omy re­mains strong enough for Fed of­fi­cials to keep rais­ing the in­ter­est rate to avoid high in­fla­tion. The Fed’s pre­ferred mea­sure for an­nual in­fla­tion, based on per­sonal con­sump­tion ex­pen­di­tures, was 2 per­cent in Septem­ber — right at the cen­tral bank’s tar­get.

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