Fed holds rates steady

Written on Nov 13, 2018

The Federal Reserve kept its key interest rate unchanged, as expected, at a two-day meeting that concluded Nov. 8, signaling that it would continue to raise rates gradually amid stable economic growth.

In its policy statement, the Fed acknowledged the strength of consumer spending, which in the second and third quarters propelled the economy to its strongest back-to-back quarters of growth in four years. The Fed added, however, that business investment recently slowed from the brisk pace it recorded earlier this year.

Traders are certain that the policy-setting Federal Open Market Committee (FOMC) will next raise interest rates in December — a decision that would almost immediately lift borrowing costs for Americans with credit cards and other short-term loans. The market has priced in a 78% probability that the committee will raise the benchmark fed funds rate to a range of 2.25% to 2.5% at its meeting in December.

The Fed also appears to be unwavering in the face of criticism from President Trump, who has called the central bank "crazy" for tightening financial conditions.

The economic overview from FOMC was very similar to the September statement; there were only two changes. First, the description of the unemployment rate went from “stayed low” to “declined.” The other change was the “growth of business fixed investment” which went from “grown strongly” to “moderated from its rapid pace earlier in the year.” In summary, the FOMC statement had nothing to suggest any future changes to its current policy of gradual rate hikes.

In addition, the FOMC statement made no mention of the volatility in the financial markets that has occurred since the last FOMC meeting. This suggests the volatility is not enough to warrant concern in their decision making.

All voting members voted for today’s policy decision. There were no dissents.

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