Fed leaves rate unchanged, but eyes hike later this year
Bloomberg
A divided Federal Reserve left its policy interest rate unchanged to await more evidence of progress toward its goals, while projecting that an increase is still likely by the end of the year.
“Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in its statement Wednesday after a two-day meeting in Washington. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”
The sixth straight hold extends U.S. central bankers’ run of getting cold feet amid risks from abroad and inconsistent signs of economic strength. Now the focus will shift to December as the Fed’s likely last chance to raise interest rates in 2016 — a move that depends on how the economy, inflation and markets fare in the months surrounding a contentious presidential election.
“The statement is much more hawkish than I thought it would be,” said Stephen Stanley, chief economist at Amherst Pierpont Securities in New York, who said he expects a rate increase in December. “That just tells you they are revving up the engines.”
Three officials, the most since December 2014, dissented in favor of a quarterpoint hike. Esther George, president of the Kansas City Fed, voted against the decision for a second straight meeting. She was joined by Cleveland Fed President Loretta Mester — in her first dissent — and Eric Rosengren, head of the Boston Fed, whose previous dissents called for easier policy.
“Our decision does not reflect a lack of confidence in the economy,” Fed Chairwoman Janet Yellen said at the start of her news conference. “Since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future.”
Stocks climbed with Treasuries after the decision, while the dollar declined and gold rallied.
The central bank’s socalled “dot plot,” which it uses to signal its outlook for the path of interest rates, showed that officials expected one quarter-point rate increase this year. Three policymakers projected that keeping rates unchanged this year would be most appropriate.
Officials scaled back expectations for hikes in 2017 and over the longer run. Policymakers see two rate hikes next year, down from their June median projection of three.
The Fed said that the labor market will “strengthen somewhat further,” adding the qualifier “somewhat further” to similar language from the July statement.
“Although the unemployment rate is little changed in recent months, job gains have been solid, on average,” the Fed said in its statement. “Household spending has been growing strongly but business fixed investment has remained soft.”
The target range for the benchmark federal funds rate remains at 0.25 percent to 0.5 percent, where it’s been since a quarter-point increase in December 2015 that ended seven years of near-zero rates.