US Federal Reserve keeps rates on hold citing ‘solid rate’ of growth

The Fed left rates unchanged overnight but hinted it would consider hiking them before year’s end, citing ‘solid’ growth.

(Federal Reserve Chair Janet Yellen. (AFP PHOTO/SAUL LOEB)

The Federal Reserve left short-term interest rates unchanged Wednesday but signalled it will consider lifting them before year’s end, amid signs the economy is gaining momentum.

Officials have pencilled in one more move for 2017 if the economy stays on track. The Fed has one more meeting scheduled before the end of the year, in December.

Officials have raised the rate four times since late 2015, in quarter-percentage point steps, to a current range between 1 per cent and 1.25 per cent.

The statement pointed to the recent improvements in economic growth.

“Economic activity has been rising at a solid rate despite hurricane-related disruptions,” it said.

The vote was unanimous.

Gross domestic product, the broadest measure of goods and services produced in the US, rose at a 3 per cent annual rate in the third quarter, the Commerce Department said Friday.

Fed Chairwoman Janet Yellen, in her most recent public remarks, kept the door open to another rate increase this year, saying the “ongoing strength of the economy will warrant gradual increases.” But she didn’t say when the next move was likely.

Market expectations for a rate increase in December are high, and Fed officials have done little to dispel them.

The policy makers met Tuesday and Wednesday after a slew of reports showed the economy’s overall health remains strong, despite the hurricanes that hit the Gulf Coast and Florida in late summer.

In its statement, the Fed said the hurricanes were likely to temporarily disrupt economic activity, employment and inflation but noted the storms “are unlikely to materially alter the course of the national economy in the medium term.”

Robust household spending, upbeat consumer sentiment, a strong labour market and better growth overseas are likely to offer support for Fed officials inclined toward another rate increase this year to ensure the economy doesn’t overheat. While US employers shed 33,000 jobs in September-largely attributed to the recent hurricanes — the statement noted that the unemployment rate “declined further.”

The unemployment rate declined to 4.2 per cent in September, the lowest level since 2001.

Ms. Yellen also said recently that progress on average hourly earnings was “encouraging.”

Boston Fed President Eric Rosengren said in an October interview that if the economy performs as expected, December seems like a reasonable time” for another rate rise.

Atlanta Fed President Raphael Bostic told reporters in September, “I am at this point looking-feeling pretty comfortable about the idea that we will be looking to move rates come December.”

Some officials, however, have said recently they want to see more evidence that inflation is rising toward their 2 per cent target before they’ll support another rate rise. The Fed’s preferred price gauge, the personal-consumption expenditures price index, rose 1.6 per cent on the year in September, but that was largely because of a storm-related surge in gasoline prices. So-called core prices, which exclude volatile food and energy items, were up 1.3 per cent.

Minneapolis Fed President Neel Kashkari, who voted against the central bank’s two rate increases this year, wrote in an essay last month, “My preference would be not to raise rates again until we actually hit” 2 per cent inflation.

Ms. Yellen has described the inflation undershoot in recent months as a “mystery,” although her “best guess is that these soft readings will not persist.”

The Fed meeting occurred as President Donald Trump is preparing to announce his pick to lead the Fed after Ms. Yellen’s current term as chairwoman expires in February. Although he has praised her and considered offering her a second term, Mr. Trump is likely to nominate Fed governor Jerome Powell, perhaps as soon as Thursday, according to a person familiar with the matter.

Mr. Powell has been an ally of Ms. Yellen on monetary policy, saying at an event last month the Fed’s efforts to raise interest rates from postcrisis lows to a more normal level “should continue to be gradual, as long as the US economy evolves roughly as expected.”

The Fed meeting was also the first attended by Mr. Trump’s first nominee to the Fed board, Randal Quarles, who took office last month as the central bank’s vice chairman for supervision.

Dow Jones