Fed holds key rate steady, signals a hike next month

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% and 2.25% after concluding a two-day monetary policy meeting this week. The rate had gone up 0.25 of a percentage point in September, the third such hike this year.

Fed officials voted 9 to 0 Thursday to keep the federal funds rate at its current level. Banks use it to set rates for credit cards, car loans, small-business loans and home equity lines of credit.

In a post-meeting statement, officials said that U.S. economic activity “has been rising at a strong rate,” that the labor market continues to strengthen and that 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,” they said. In recent months, Fed statements had noted that spending was growing strongly.

The Commerce Department reported last month that fixed business investment, which includes spending on equipment, factories and other structures, declined at a 0.3% annual rate from July to September after increasing at least 6% for three straight quarters.

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

The Dow Jones industrial average dropped nearly 150 points after the Fed statement was released, but then recovered most of those losses. For the session, the Dow closed up 10.92 points, or 0.04%, at 26,191.22.

Fed officials have indicated they would enact four small hikes this year and three more next year to push the rate over 3%, 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 shortterm 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.

Analysts said 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% from 4.2% the previous quarter. It 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% in September — right at the central bank’s target.