Publicado: Lun, Noviembre 12, 2018
Financiera | Por Marilu Caballero

Fed leaves key rate unchanged but sees further hikes ahead

Fed leaves key rate unchanged but sees further hikes ahead

Traders now are pricing in just two rates hikes next year.

On Thursday, Fed officials refrained from mentioning recent market volatility in their statement.

Fed officials worry low unemployment and higher wages could speed up inflation, forcing the central bank to raise rates more aggressively, and tip the economy into recession.

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

"We think the Fed will still characterize the economy as "strong", despite moderation is business fixed investment spending", Michael Gapen, chief USA economist at Barclays, wrote in a note to clients.

Fed policymakers are set to gather in Washington on Wednesday and Thursday.

Officials voted unanimously in September to raise their benchmark rate to a range between 2% and 2.25%. He also blasted his Fed chief, a former investment banker he nominated previous year, as a "threat" to Republican control of Congress over a string of interest rate increases.

The Fed is edging closer to what it sees as the "neutral" level. "As you know, the stock market can be extremely volatile".

Analysts saw the central bank's decision to highlight the economy's strength and to make few changes in its policy statement as a sign that it remains on track to raise rates next month. Others expect that economic growth will remain solid and the job market strong and that the Fed will decide that four rate increases will be justified next year to guard against high inflation.

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Beginning in late 2015, the central bank has gradually raised its key rate from a record low near zero, where it had held it since the 2008 financial crisis to try to stabilize the financial system and stimulate growth.

The Fed's policy statement did not explicitly take stock of the recent volatility in United States equity markets that led to the selloff in October, or address the possibility of a slowdown in global growth next year.

In fact, it might be read as a sign the Fed believes the risk the economy will overheat may be retreating.

Even Powell has cautioned that central bankers might have to "move a little bit quicker" if they see the economy getting "stronger and stronger" and "inflation moving up".

As it happens, this week's meeting will be the last that will not include a news conference by the Fed chairman.

The Fed did not specify any risks to the economy it perceives.

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.

However, most Fed officials have brushed off the importance of lower equity prices, viewing the decline as normal volatility as opposed to a signal about the outlook.

The political shift in Washington is expected to have little impact on the USA central bank's trajectory.

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