Fed leaves key rate un­changed but sees fur­ther in­creases ahead

In state­ment, it points to strength of U.S. econ­omy

Richmond Times-Dispatch - - BUSINESS - BY MAR­TIN CRUTSINGER

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, Bankrate.com’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 nearly 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 to 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 jus­ti­fied next year to guard against high in­fla­tion.

Chair­man Jerome Pow­ell has stressed that the Fed is de­ter­mined to fol­low a mid­dle-of-theroad 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.


Fed­eral Re­serve Chair Jerome Pow­ell (left), seen with Vice Chair for Su­per­vi­sion Ran­dal Quar­les, has stressed that the Fed will grad­u­ally raise rates to con­trol in­fla­tion but avoid tight­en­ing too ag­gres­sively and per­haps trig­ger­ing a re­ces­sion.

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