The Federal Reserve has again kept benchmark interest rates near zero, but gave its clearest signal yet that it may raise rates at its next meeting in December.
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Logan interpreted this statement to mean a December decision will be heavily contingent on the two employment reports and the inflation reports to be released between now and the December 15-16 Fed meeting.
“The Committee continues to see the risks to the outlook for economic activity and the labour market as almost balanced, but is monitoring global economic and financial developments”, the statement added. The calculation is based on the assumption that the effective fed funds rate will average 0.375% after the first increase.
The decision by the Federal Open Market Committee comes a month after a previous decision to keep interest rates at historic lows despite broad expectations of a September interest rate hike.
Paul Ashworth, chief USA economist at Capital Economics, predicted that “everything will come down to the incoming data between now and mid-December …”
Analysts are now looking favourably at a rate hike before the end of the year, with futures contracts implying a 43% possibility December is the call, compared to 34% prior to the statement, according to Reuters.
It noted the slower job creation, but argued that the jobs market has been tightening “since early this year”. In the weeks since, FOMC members appear split on whether the temporary headwinds restraining inflation from a stronger dollar and lower energy prices will recede enough to justify a rate hike. If the Federal Reserve increases the interest rates, there may be increase in the interest rate all over the world.
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It was supported on Tuesday after data showed a second straight drop in a gauge of U.S. business investment in September and a decline in consumer confidence this month, hinting at economic weakness that could prompt the Fed to delay a rate hike. Although United States employment has remained encouraging, it is yet to manifest itself in terms of higher wages and subsequent inflationary pressure. That could avert a government shutdown and raise the government’s borrowing limit – two threats that concern Fed policymakers.
