Economy

Fed leaves key rate unchanged but sees further hikes ahead

Fed leaves key rate unchanged but sees further hikes ahead

"December is pretty well baked in, but more important is the tone that is set as we look toward 2019", said Lindsey Piegza, chief economist at Stifel Nicolaus & Co.in Chicago. Making that change, which is seen as unlikely, would be dovish and suggest the central bank is closer to the end of the rate cycle.

The FOMC at its September meeting actually voted to remove the word "accommodative" from its description of the current policy path. Powell and others have said the word is no longer useful in describing how the Fed is proceeding.

Since the stock market started tumbling last month, President Donald Trump has attacked the Fed's rate hikes as well as Powell's leadership. With U.S. unemployment at a 48-year low of 3.7 per cent, officials may welcome some moderation in growth. Aside from a short statement, it had nothing more to say.

Business investment has only risen slightly in the third quarter due to the Trump administration's escalating trade wars, and the stimulative effects of the December tax cuts also appears to have worn off.Fed officials noted on Thursday that the growth of business investment had "moderated since its rapid pace earlier this year".

U.S. Treasury yields largely remained near their highs on the day.

The U.S. economy looks very strong on nearly every front, the Fed said several times in a statement released Thursday.

Powell's statements were followed by a prolonged stock market sell-off and a rise in short-term rates.

For now, the Fed has sent strong signals it plans to stay the course.

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Financial markets have also experienced more volatility.

"The FOMC statement acknowledged the decline in unemployment and the slowdown in business investment".

Or it might be read as the outcome of President Donald Trump's trade confrontations, which the Fed previously has cited as a factor undermining business confidence and investment plans, as tariffs increase costs.

"What the statement overall signals is that they're still on track to raise rates". He also blasted his Fed chief, a former investment banker he nominated a year ago, as a "threat" to Republican control of Congress over a string of interest rate increases. That gap between the two rates was maintained when the Fed tightened in September, taking IOER to 2.20 per cent and the top of the range to 2.25 per cent.

Beginning in late 2015, the central bank has gradually raised its key rate from a record low near zero, where it had held it since the 2008 financial crisis to try to stabilize the financial system and stimulate growth.

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.

Since then, the effective funds rate has risen to trade in line with the IOER rate for nearly every day for the past couple of weeks, stirring talk that officials might adjust the reserves rate down by another five basis points at this meeting.


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