US Fed leaves rates unchanged, stays on course for December hike

Image of eurusd daily chart

Image of eurusd daily chart

Policy makers at the Federal Reserve are set to gather in Washington on Wednesday to discuss whether to cool off plans to hike rates faster. A rate hike is widely expected in December, and the Fed has indicated it is likely to do three more increases next year.

"In view of realized and expected labor market conditions and inflation, the Committee chose to maintain the target range for the federal funds rate at 2 to 2 ¼ percent", the FOMC said in a statement. Business investment can be a key to rising productivity and future growth, and the fact that it had "moderated from its rapid pace", as the Fed said, was the only cautionary note in a policy statement that touted strong job gains and household spending, and a "strong rate" of overall economic activity.

Despite a US trade war with key nations, weaker corporate investment and a sluggish housing market, the Fed is showing confidence in the economy's resilience.

In its most recent forecast in September, the Fed envisioned one more rate hike in 2018 and three more in 2019. Central bankers have been cautiously taking steps in recent years to prevent the economy from overheating by slowly lifting short-term interest rates. Traders now are pricing in just two rates hikes next year.

In the seven years since then Fed Chairman Ben Bernanke took his first post-meeting round of questions from reporters in April 2011, markets have come to expect policy changes only at meetings followed by a press conference, despite policymakers' insistence that every meeting is "live".

In one of its few changes, the Fed downgraded its assessment of business investment spending, observing that it had slowed from its pace earlier in the year. He also blasted his Fed chief, a former investment banker he nominated previous year, as a "threat" to Republican control of Congress over a string of interest rate increases.

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Shortly after the US midterm elections, the US Federal Reserve voted to keep the benchmark interest rate the same at 2 to 2.25 percent.

The Fed's policy decision was unanimous. As a result, the Fed could mention "tighter financial conditions" in the statement.

"The question for the market is, is the Fed data-dependent or is it maintaining a rigid schedule for rate hikes in 2019?" said Quincy Krosby, chief market strategist for Prudential Financial in Newark, New Jersey. The central bank's policymakers have stressed, and most economists agree, that these small quarter-point increases amount to a gradual pace of credit tightening.

The Fed thinks the current interest rate level is still helping to stimulate the economy and top leaders at the central bank, including Fed Chair Jerome Powell, want to see interest rates move to a so-called "neutral level" which doesn't boost or curb growth.

Since the stock market started tumbling last month, President Donald Trump has attacked the Fed's rate hikes as well as Powell's leadership.

Powell, who was Trump's hand-picked choice to lead the Fed, has avoided responding directly. Trump's public criticism has aroused concern that he is intruding on the central bank's long-respected political independence and its need to operate free of outside pressure.

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