The Federal Reserve is keeping its key interest rate unchanged but signaling that it will likely raise rates before year’s end.
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A “dot plot” used by Federal Reserve leaders to mark their forecasts for interest rates predict fewer increases in the next few years, underscoring diminished expectations for the USA economy.
The 17 Fed policymakers will have to balance a strong labor market, marked by an unemployment rate of 4.9 percent and job gains that are outpacing population growth, with inflation that is still well below the central bank’s 2 percent target and weak August readings for manufacturing and service industry activity.
In fact, minutes from that meeting show that the Fed may not raise interest rates until December or later. As such, our view is that the Fed will gradually adjust interest rates higher, and that the boost gold and silver prices got from diminished expectations for a rate hike is mainly behind them. So it comes as no surprise then that the FOMC chose to keep interest rates unchanged at their September meeting.
When the Fed ends its latest policy meeting Wednesday, it’s expected to leave the short-term rate it controls at the low level where it’s been for 10 months.
Fed Chair Janet Yellen says Fed officials have been “distressed” to see banks only addressing problems of employee misconduct after they crop up, rather than having solid procedures in place to ensure that employees act “in an ethical and appropriate manner”.
Read Thursday’s Arkansas Democrat-Gazette for full details.
Three of the policy makers dissented on the policy statement, saying they favoured raising rates this week. Brent crude, used to price worldwide oils, rose 95 cents, or 2.1 percent, to $46.83 a barrel in London.
It’s worth noting, however, that three members of the committee – Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren – voted against the decision, preferring to raise the federal funds rate to 0.50% to 0.75% at this meeting.
The assessment of the economy contained in the statement appears to be little changed from the previous one and a sentence indicating that the case for a rate increase has strengthened was added.
Nasdaq-traded companies with especially impressive gains included Amazon, up 1.2 per cent, eBay, up 2.0 per cent and Yahoo, up 3.2 per cent. Apple was flat.
In his contribution to Business Insider’s most important charts feature, Rosenberg highlighted a broad economic indicator that may already be in recession, which should deter the Fed’s bias to hike.
“The Fed appears to be firmly on track for a December hike”, Paul Ashworth, chief United States economist at Capital Economics, said after the statement was issued.
The policymakers also forecast that inflation will almost reach the Fed’s target next year before achieving 2 percent in 2018 and 2019.
The BoJ introduced a 0% target for its 10-year government bond and also said it will continue to stimulate the economy after inflation has overshot its 2% mandate.
The decision, at the end of a two-day meeting in Washington, leaves open the question of whether the committee might raise rates when it next meets in October, shortly before the USA presidential election. “They will want to prepare markets so that when do they move, it will be an nearly non-event”. And the sad fact is that we are getting that healthy pace of job market growth with very slow growth in output. While inflation remains low we expect it to rise toward the 2 percent objective over time.
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Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Jerome H. Powell; and Daniel K. Tarullo.
