The presence of those two little words – “next meeting” – were uncharacteristically specific coming from the central bank, which normally gives itself a lot of leeway in its language to hike or lower rates as it sees fit, whenever that may be.
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WASHINGTON-Federal Reserve officials on Wednesday kept short-term interest rates unchanged near zero, but they opened the door more explicitly than before to raising rates at their final 2015 meeting in December.
“In determining whether it will be appropriate to raise the target [fed-funds interest rate] at its next meeting, the [Fed] will assess progress-both realized and expected-toward its objectives of maximum employment and 2 % inflation”, the Fed said in its statement. It repeated in its statement that “underutilisation of labor resources has diminished”.
It did not, however, repeat that global risks would have a likely impact on the United States economy, as it had warned at its last meeting in September.
While a rate hike has been long-awaited, it nevertheless raises the prospects of higher costs of capital and weaker emerging-market currencies around the world.
Fed Governors Lael Brainard and Daniel Tarullo urged caution, arguing slower growth overseas could sap USA economic strength and keep inflation too low.
The Fed has struggled to convince sceptical investors that a rate hike is imminent. Before Wednesday’s meeting, financial markets saw virtually no chance it would raise rates this week. September’s disappointing employment report showed non-farm payrolls had grown by only 142,000 in the month, casting doubt on the sustainability of the jobs recovery and undercutting the argument for a rate hike.
Compounding the situation, central banks from the eurozone to China are easing monetary policy, keeping upward pressure on the USA dollar. That hurts American exporters and acts as a brake on inflation.
The Fed’s next meeting takes place on December 15 and 16 and, unlike this meeting, will be followed with a press conference by Fed chair Janet Yellen.
In its statement, the Fed repeated it wants to be “reasonably confident” that low inflation will rise to its 2% target. When the European Central Bank hinted last week at more bond-buying stimulus to come, the dollar rose 3 per cent.
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The bank has been signalling its intention for a while to hike its benchmark interest rate at a few point this year, but with time running out on the calendar and the economy showing signs of weakness, many watchers have predicted the bank may have to hold off until 2016 or beyond. Richmond Fed president Jeffrey Lacker dissented on Wednesday for the second consecutive meeting.
