Published: Mon, November 12, 2018
Business | By Pearl Harrison

Federal Reserve leaves key policy rate unchanged

Federal Reserve leaves key policy rate unchanged

The U.S. Federal Reserve held interest rates steady on Thursday and said ongoing strong job gains and household spending had kept the economy on track.

The Federal Open Market Committee will issue a statement at 2 p.m. ET on Thursday.

The U.S. interest rate is now in a range of 2 to 2.25 percent, but the Fed has signaled it wants to gradually raise rates in the coming months to 3 percent or slightly higher.

"Interest rates are still accommodative, but we're gradually moving to a place where they will be neutral", Powell said during an interview with PBS.

Some analysts say they think the fundamental message from the Fed on Thursday will be that with a strong economy and unemployment at a near five-decade low of 3.7 percent, steady if modest rate hikes should remain in place for now. It was the eighth hike since policymakers started to normalize monetary policy in late 2015. The interest rate the Fed pays banks on excess reserves was left unchanged at 2.2%, as expected, Economic Times reported. Officials previously indicated that three rate hikes would come this year.

Meantime, the unemployment rate held at 3.7% in October, a half-century low, and wages rose 3.1% on the year, the biggest year-over-year increase since 2009. The brisk pace of economic growth - a 3.5 percent annual rate in the July-September quarter, after a 4.2 percent rate in the previous quarter - has raised the risk that inflation could begin accelerating.

The Fed repeatedly emphasized the economy's strength in a statement released after its two-day policy meeting.

The Fed's meeting came after the Labor Department reported last week that the U.S. economy added a larger-than-expected 250,000 jobs in October, with the unemployment rate unchanged at 3.7 per cent, the lowest level in nearly five decades.

This week's Fed meeting was the first since President Trump last month escalated his criticism of the central bank.

The central bank repeated that it expected "further gradual increases" in the key interest rate as the economy continues to expand but the statement gave no clear signal on whether it would have to move more aggressively to head off inflation.

That was well above the roughly 2% rate many economists and the Fed believe is the underlying trend.

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

The FOMC at its September meeting actually voted to remove the word "accommodative" from its description of the current policy path. Powell and others have said the word is no longer useful in describing how the Fed is proceeding.

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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