Fed expected to hike United States interest rates in December as economy strengthens

Irving Hamilton
November 9, 2018

"The labour market has continued to strengthen and. economic activity has been rising at a strong rate", the U.S. central bank said, leaving intact its plans to continue raising rates at a gradual pace.

"The labor market has continued to strengthen and. economic activity has been rising at a strong rate", the Fed said in its latest policy statement. The Federal Open Market Committee, the governing board of the Fed, left the door open for another rate hike in December.

Risks to the economic outlook appear to be "roughly balanced", with inflation remaining near its 2% target and unemployment falling.

Mr McMillian also acknowledged policymakers noted "business investment has moderated", which may be a drag on future growth.

Boosting investment was one of the main objectives behind the Trump administration's move to reduce the corporate tax rate as part of its restructuring of the tax code at the end of 2017.

The benchmark federal funds rate remains in a range of 2 percent to 2.25 percent.

Minutes from the Fed's policy meeting in September showed a "number" of members want to raise interest rates faster in the short term to make sure inflation doesn't take off well beyond their 2% target.

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I think we had more energy and once you set out that way it is very hard to change it until you get to half-time. It is not just that, it is what else he gives the team.

"We expect the Fed to hike at the meetings in December, March and June, when it would reach the 3%. But apart from that they have not signalled any warning signs at all".

"I don't think they'll pick up the pace of rate hikes right now, but if things accelerate the next few months they could increase the pace", says Joseph LaVorgna, chief economist for Natixis.

The dollar also weakened against the euro and yen and US Treasury yields held near the day's high.

The increase in wage growth after almost a decade of stagnating, supports Fed officials' belief in the so-called Phillips curve, which theorizes that as the unemployment rate falls, wages rise.

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

The S&P 500 and Nasdaq closed slightly lower on Thursday after a Federal Reserve statement, and energy stocks were the biggest drag on the S&P as USA crude oil prices fell.

The Fed's policy decision was unanimous.

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