The Federal Reserve, on Wednesday following a two-day meeting, and with two members dissenting, left interest rates unchanged but anticipated the FOMC “judges that the case for an increase in the federal funds rate has continued to strengthen, but decided, for the time being, to wait for some further evidence of continued progress toward its objectives”.
In other words the Federal Open Market Committee can be expected in December to raise its influential interest rate amid steady improvement in the job market and solid economic growth, but also once the much disputed and full of surprises presidential race is over. Republican candidate Donald Trump has repeatedly criticized the Fed for artificially keeping rates low in support of her opponent Hillary Clinton.
In a carefully worded release FOMC said that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year, and although the unemployment rate is little changed in recent months, job gains have been solid.
On the other hand household spending has been rising moderately but business fixed investment has remained soft, while inflation has increased somewhat since earlier this year but is still below the Committee's 2% longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.
Looking ahead the FOMC expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.
Thus the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2%.
The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives and the stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2% inflation.
The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions”.
Finally voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action were: Esther L. George and Loretta J. Mester, each of whom preferred at this meeting to raise the target range for the federal funds rate to 1/2% to 3/4%.