Fed­eral Re­serve leaves key pol­icy rate un­changed

The Bradenton Herald - - 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 hike is ex­pected in De­cem­ber.

The Fed left 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 trade war with key na­tions, weaker corpo- rate 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.

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 jus­ti­fied 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 small quar­ter­point in­creases amount to grad­ual credit tight­en­ing.

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