Fed likely to hold rates, put Dec hike firmly in view

US economy improving; a hike now will be untimely ahead of polls

WASHINGTON • The United States Federal Reserve is expected to keep interest rates unchanged today but set the stage for a hike in December, amid signs the economy is picking up steam.

The central bank has grown increasingly confident about raising rates and Fed chair Janet Yellen said in September that a move before the end of the year was likely, should employment and inflation continue to strengthen.

Data since then has shown payrolls still growing solidly while consumer prices are showing some signs of ticking higher, putting both employment and inflation close to the Fed's long-run estimates.

Growth, too, has improved, with the economy accelerating at a 2.9 per cent annual pace in the third quarter after a fairly sluggish first half. Investors have all but ruled out a move at this week's meeting, given that it takes place only a week before the US presidential election.

A number of Fed officials recently said a December rate hike would be preferable.

JPMorgan economist Michael Feroli, who used to be in the Fed, said in a note to clients: "It is widely understood that it would be politically treacherous for the Fed to hike just before a very heated election."

An ABC News/Washington Post national poll released on Sunday showed Democratic candidate Hillary Clinton with a one percentage point lead over Republican rival Donald Trump.

This week's Fed policy decision is due to be released on Wednesday at the conclusion of a two-day meeting.

Dr Yellen is not scheduled to hold a press conference.

At the meeting prior to raising rates last year, the Fed firmly signalled its intentions by including a reference to possibly raising rates "at its next meeting". This time around, it could take a softer approach. In September, policymakers already put markets on notice by saying they decided to stand pat "for the time being to wait for further evidence" that employment and inflation were progressing.

The Fed could lower the bar more to "some further evidence" being required, which may also serve to assuage the concerns of at least one of the three voting policymakers who called for an immediate hike in September.

Nomura chief US economist Lewis Alexander, also formerly with the Fed, said that with investors expecting a December move, the Fed probably will not feel that it needs to lock in its intentions any more than necessary.

"It will probably want to do something like, have Yellen give some relatively high-profile speech a couple of weeks before the meeting," he said.

"That's probably a better way than putting something in the statement that inevitably is going to be pretty cryptic."


A version of this article appeared in the print edition of The Straits Times on November 02, 2016, with the headline 'Fed likely to hold rates, put Dec hike firmly in view'. Print Edition | Subscribe