FOMC Leaves Key Fed Funds Rate Unchanged

FOMC Leaves Key Fed Funds Rate Unchanged

FOMC Leaves Key Fed Funds Rate Unchanged

Little reaction to the FOMC announcement, the major averages now trade little changed from their pre-FOMC release levels.

The Fed has left its Key policy rate unchanged but signaled that it plans to keep responding to the strong US economy with more interest rate hikes. The next rate hike is expected in December.

The FOMC left its benchmark rate in a range of 2 to 2.25%.

A statement it issued Thursday after its latest policy meeting portrayed the economy as robust, with healthy job growth, low unemployment, solid consumer spending and inflation near the Fed’s 2% target.

Despite a US trade disputes with Key nations, weaker corporate investment and a sluggish housing market, the Fed is showing confidence in the economy’s resilience. To help control inflation, it has projected 3 rate increases in Y 2019 after an expected 4th hike of the year next month.

The Fed will be monitoring the pace of growth, the job market’s strength and gauges of inflation for clues to how the economy may evolve in the coming months.

The brisk pace of economic growth; a 3.5% annual rate in Q-3, after a 4.2% rate Q-2 has raised the risk that inflation could begin accelerating.

Some economists foresee only 2 Fed rate hikes next year.

Others expect that economic growth will remain solid and the job market strong and that the Fed will decide that four rate increases will be justified next year to guard against high inflation.

At 3.7%, the unemployment rate is already at its lowest mark since Y 1969.

Chairman Jerome Powell has stressed that the Fed is determined to follow a middle-of-the-road approach: Keep gradually nudging up rates to control inflation but avoid tightening too aggressively and perhaps triggering a recession.

Even after 3 increases this year, the Fed’s benchmark rate is still low by historical standards.

US President Donald Trump has attacked the Fed’s rate hikes as well as Mr. Powell’s leadership. President 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.

President Trump has called the Fed, with its string of rate increases, “my biggest threat” (to a stronger stock market and economy).

The Fed is edging closer to what it sees as the “neutral” level. This is the point at which the Fed’s Key rate is thought to neither stimulate the economy nor restrain it.

The median assessment of Fed officials has pegged the neutral rate at 3%. One more rate increase this year and 2 more in Y 2019 would leave the Fed’s benchmark rate at a range of 2.75 to 3%.

Stay tuned…

 

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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