Fed leaves rates unchanged, signals December hike

Increased inflation concerns loom ahead of Fed's committee meeting

The U.S. Federal Reserve on Thursday left key interest rates unchanged, in line with market expectations, keeping the central bank on track to have one more rate hike in December.

Aside from a comment that business investments had moderated from earlier in the year, investors said that the statement was largely as expected and suggested that the Fed's next rate hike would be in December.

The policy-setting Federal Open Market Committee kept the federal funds rate at 2.0-2.25 percent at the conclusion of a two-day policy meeting and noted that inflation was running close to the central bank's two percent target.

Despite a USA trade war with key nations, weaker corporate investment and a sluggish housing market, the Fed is expressing confidence in the economy's resilience.

In its most recent forecast, the Fed projected that it would raise rates three additional times in 2019 but private economists are split. The 10-year Treasury note yield, a benchmark for both consumer and business borrowing costs, was 3.23 per cent, around the highest since 2011.

Fed officials also upgraded their assessment of the economy, forecasting growth of 3.1 percent for the year.

"By the middle of next year, however, we expect economic growth to slow below its potential pace, which would force the Fed to the sidelines", he said in a note.

One change that probably will be discussed during the meeting: A technical adjustment to the interest rate the Fed pays on excess bank reserves, or IOER.

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Fed officials have stressed that their monetary policy decisions will be made without any consideration of politics.

The market and the Fed differ on the path in 2019.

In deciding how fast or slowly to keep raising rates, the Fed will be monitoring the pace of growth, the job market's strength and gauges of inflation for clues to how the economy may evolve in the coming months.

The US economy grew at a 3.5% annual rate in the third quarter, according to data released in late October.

"If strong growth and robust employment gains were to continue into 2019 and be accompanied by a material rise in actual and expected inflation, that circumstance would indicate to me that additional policy normalization might well be required beyond what I now expect", Clarida said according to prepared remarks in an October 25 speech.

Since Fed officials met in late September, "the labor market continues to strengthen", the statement read. The housing market has also showed some weakness as mortgage rates have risen. That is roughly double the growth rate Fed officials believe can be sustained over the long run unless the supply of workers or their productivity increases more rapidly.

The Fed thinks the current interest rate level is still helping to stimulate the economy and top leaders at the central bank, including Fed Chair Jerome Powell, want to see interest rates move to a so-called "neutral level" which doesn't boost or curb growth.

While Trump has called the Fed's rate hikes his "biggest threat", Powell, who was Trump's hand-picked choice to lead the Fed, has avoided responding directly to the criticism.

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