Fed leaves rates unchanged, expects to keep hiking them gradually

  • The Federal Reserve left its benchmark interest rate unchanged at its November meeting, as expected.
  • It released a statement acknowledging the robustness of consumer spending and the recent slowdown in business investment.
  • Traders are almost certain the next interest-rate hike is coming in December – a move that would almost immediately lift Americans’ borrowing costs for credit cards and other short-term loans.
  • Thursday’s statement was the last for the foreseeable future that wasn’t followed by a press conference with the Fed chair.

The Federal Reserve kept its key interest rate unchanged as expected at a two-day meeting that concluded Thursday, signalling that it would continue to raise rates gradually amid stable economic growth.

In its policy statement, the Fed acknowledged the strength of consumer spending, which in the second and third quarters propelled the economy to its strongest back-to-back quarters of growth in four years. The Fed added, however, that business investment recently slowed from the brisk pace it recorded earlier this year.

Traders are certain that the policy-setting Federal Open Market Committee will next raise interest rates in December – a decision that would almost immediately lift borrowing costs for Americans with credit cards and other short-term loans. The market has priced in a 78% probability that the committee will raise the benchmark fed funds rate to a range of 2.25% to 2.5% at its meeting in December, according to data compiled by Bloomberg.

Heightened financial market volatility has not altered the Fed’s resolve to hike in December,” said Ellen Zentner, Morgan Stanley’s chief US economist.

The Fed also appears to be unwavering in the face of criticism from President Donald Trump, who has called the central bank “crazy” for tightening financial conditions.

Thursday’s statement marked the Fed’s final policy announcement, at least for the foreseeable future, that was not followed by a press conference. Fed Chairman Jerome Powell announced in June that starting in January he would hold press conferences after every meeting to improve communications.

Since Ben Bernanke began the practice in April 2011, press conferences have been held once a quarter, or four times out of the eight Fed meetings scheduled every year.

Here’s the full Fed statement:

“Information received since the Federal Open Market Committee met in September indicates that the labour market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 per cent. Indicators of longer-term inflation expectations are little changed, on balance.

“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee’s symmetric 2 per cent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In view of realised and expected labour market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 2 to 2-1/4 per cent.

“In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realised and expected economic conditions relative to its maximum employment objective and its symmetric 2 per cent inflation objective. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

“Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Richard H. Clarida; Mary C. Daly; Loretta J. Mester; and Randal K. Quarles.”

Now read:

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.