The Federal Reserve’s Federal Open Market Committee (FOMC) announced on Wednesday that it is keeping interest rates unchanged.
“The labor market has continued to strengthen and ... economic activity has been rising at a solid rate despite hurricane-related disruptions,” the FOMC said in a statement after its unanimous policy decision. While the hurricanes did cause a dip in payroll employment in September, the unemployment rate did continue to drop, it noted. The positive picture the FOMC is painting is leading industry insiders to speculate that the committee will raise rates in December.
Household spending has been heating up at a moderate rate, while growth in business fixed investments has been expanding in recent quarters, the FOMC noted. Gas prices pumped up in the wake of the hurricanes, magnifying overall inflation in September. By contrast, inflation for items other than food and energy stayed soft. On a 12-month basis, both inflation measures have diminished this year and are hovering below 2 percent, the committee reported.
Market-based measures of inflation compensation continue to lay low, while survey-based measures of longer-term inflation expectations are little changed, on balance, the FOMC said.
Hurricane-related troubles and related rebuilding efforts will continue to affect economic activity, employment, and inflation in the near term, the report said, but the storms are unlikely to materially change the course of the U.S. economy over the medium term. As such, the committee continues to expect that economic activity will widen at a moderate pace, and labor market conditions will strengthen a bit more.
Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the FOMC’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the committee is watching inflation developments closely.
In other Fed news, President Donald Trump is slated to announce his nomination for Fed chair tomorrow. Fed Gov. Jerome Powell is considered to be a shoo-in for the job, sources close to the proceedings say. If so, Powell will replace outgoing Fed Chair Janet Yellen when her first term ends in February.