The US Federal Reserve on Thursday kept the benchmark lending rate unchanged, highlighting the continued strong performance of the economy but also pointing to a slowdown in business investment.
The central bank repeated that it expects “further gradual increases” in the key interest rate as the economy continues to expand, but the statement gave no clear signal on whether it would have to move more aggressively to head off inflation.
The statement could even be read as a sign the Fed believes that the risk the economy will overheat might be retreating.
The policy-setting Federal Open Market Committee kept the federal funds rate at 2 to 2.25 percent at the conclusion of a two-day policy meeting and noted that inflation was running close to the central bank’s 2 percent target.
Economists almost unanimously expect the fourth rate increase of the year next month, but with a recent report showing wages finally beginning to rise, they are watching for indications about the likely pace of moves next year.
The Fed said the economy “has been rising at a strong rate,” with solid job gains, falling unemployment and household spending that is “growing strongly.”
The 10-year US Department of the Treasury bond yield hit a seven-year high after the announcement, while stocks closed the day mostly lower, although likely affected more by oil prices than the Fed decision.
Yet markets will dissect a notable change in the Federal Open Market Committee’s language, saying “business fixed investment has moderated from its rapid pace earlier in the year.”
That could be viewed as a sign that the Fed could move more cautiously, with fewer than the expected three rate hikes next year.
Or the comment might be read as the consequence of US President Donald Trump’s trade confrontations, which the Fed has repeatedly cited as a factor undermining business confidence and investment plans, as tariffs increase costs.
The Fed is to release the minutes of this meeting on Nov. 29, but the central bankers might not know as yet what they will need to do next year as they try to fine-tune the economy.
Fed Chairman Jerome Powell is to have ample opportunity to shine a light on the thought process as he is to hold a press conference after every meeting starting next month.
Berenberg Capital Markets economist Mickey Levy said the Fed’s upbeat assessments “essentially lock in a December Fed funds rate hike.”
However, he said he expects the Fed “to take a slower approach next year, raising the Fed funds rate only twice and pausing through 2020.”
The Fed’s deliberations are increasingly conducted in a highly charged political atmosphere.
Trump has repeatedly attacked Powell, saying the central bank is raising rates too aggressively, which means any slower tightening could cause critics to question whether policymakers have yielded to political pressure.
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