Economy

WRAPUP 2-Fed holds interest rates steady, says economy remains on track

WRAPUP 2-Fed holds interest rates steady, says economy remains on track

The Federal Reserve appears on track to raise interest rates once more this year but will likely hold off on any action when its latest policy meeting ends Thursday.

"Our baseline scenario is a federal funds rate hike in December, another hike in March 2019, followed by an inversion of the curve in Q2".

"In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective", the statement reads.

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

In December, traders will focus on fresh Fed forecasts that could signal a change to its growth outlook or to its consensus view that three rate hikes will likely be needed 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. Rates could rise to 3% next year.

Even after three increases this year, the Fed's benchmark rate is still low by historical standards.

However, the statement noted that the "growth of business fixed investment has moderated from its rapid pace earlier in the year". He also blasted his Fed chief, a former investment banker he nominated past year, as a "threat" to Republican control of Congress over a string of interest rate increases.

The Federal Reserve is on course to raise interest rates in December amid a strong United States jobs market and economic growth.

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Data released in late October showed the USA economy grew at a 3.5 per cent annual rate in the third quarter, well above the roughly 2 per cent annual growth pace the Fed and many economists regard as the underlying trend.

The Fed's decision Thursday was approved 9-0 by its voting policymakers. As a result, the Fed could mention "tighter financial conditions" in the statement.

Last week, the government reported that the economy added a sizable 250,000 jobs in October and that average pay rose 3.1 percent over the previous 12 months - the sharpest year-over-year gain in almost a decade. That is roughly double the growth rate Fed officials believe can be sustained over the long run unless the supply of workers or their productivity increases more rapidly.

"The latter would lead to a pause in the Fed's hiking cycle".

Trump's public criticism has aroused concern that he is intruding on the political independence the Fed needs to assure markets that it will make tough choices when needed to keep inflation under control.

Data released in late October showed the USA economy grew at a 3.5 percent annual rate in the third quarter, well above the roughly 2 percent annual growth pace the Fed and many economists regard as the underlying trend.

Trump is widely expected to keep criticizing the Fed for rising rates, but so far Powell has stayed on course and avoided firing back.


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