FOMC Keeps Rates On Hold, Outlook Murky
The US Fed’s FOMC kept interest rates unchanged Wednesday, downplaying global economic headwinds and left the door open to tightening monetary policy at its next meeting in December.
Following its October 2-day policy meeting, the central bank said it was still monitoring economic and financial developments abroad, but did not repeat that global risks would have a likely impact on the US economy, as it warned at its last meeting in September.
That omission marks a softening in tone compared to its statement last month.
The FOMC also noted that US job growth slowed and the unemployment rate held steady. It repeated in its statement that “underutilization of labor resources has diminished.”
“The committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced,” the Fed said in its statement. It added that the US economy has been expanding at a moderate pace.
Most Fed policymakers said they expect to raise rates in Y 2015, but 2 broke ranks with Fed Chairwoman Janet Yellen this month, questioning her view that labor market tightness will fuel inflation and overheat the economy urging caution rather than a rate increase, arguing that a weakening global economy could sap US economic growth and keep inflation too low.
The Fed has struggled to convince skeptical investors that a rate hike is imminent.
Before this meeting, financial markets saw a 0-5% chance it would raise rates this week and a 34% chance of such a move in December. A rate hike is not expected until March 2016 if then.
The Key stumbling block is that US economic growth is and has been anemic, and inflation low.
Compounding the situation, ECB, BOJ and PBOC are easing monetary policy, keeping upward pressure on the USD. That hurts American exporters and acts as a cap on inflation.
In its statement, the Fed repeated it wants to be “reasonably confident” that low inflation will rise to its 2% target.
Ms. Yellen did not hold a news conference Wednesday.
The FOMC now has 2 months of data to parse, including Thursday’s Q-3 GDP estimate, and employment reports for October and November, before deciding if the economy is strong enough to withstand a rate hike.
It will also get a chance to see how monetary policy easing in Europe, Japan and China plays out in financial markets. When the ECB hinted last week at more bond-buying stimulus to come, the USD rose 3%.
Richmond Fed President Jeffrey Lacker (FOMC voting member) dissented Wednesday for the 2nd straight meeting.
Stay tuned…
HeffX-LTN
Paul Ebeling
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