The Federal Reserve has chosen not to change interest rates on Thursday, but hinted that rates are likely to rise in December.
The US interest rate is currently in the range of 2 to 2.25%, but the Fed has indicated its intention to gradually raise rates to 3% or slightly more in the coming months. A rate hike is widely expected at the Fed's next meeting on December 19, and the Fed said it was likely to make three more rises next year.
The US economy looks very strong on almost every front, the Fed said several times in a statement released on Thursday. Businesses are hiring workers at a rapid pace, wages are rising and consumers, the backbone of the economy, continue to shop at a steady pace.
"Job creation has been strong on average in recent months and the unemployment rate has declined," the Fed said in its statement. "Global inflation and non-food and energy inflation remain close to 2%."
The Fed noted that business investment "has moderate compared to the rapid pace recorded at the beginning of the year ", a surprise, because the tax cuts were to stimulate business spending. But the Fed does not seem alarmed.
It should be noted that the report did not mention any mention of the slowdown in the real estate market or the recent nervousness of the stock market. People are buying fewer new homes for higher mortgage rates. Some fear that this weakness may spread to other sectors, but this has not been done yet.
President Trump has repeatedly criticized the Fed for raising rates too quickly, fearing that this will hurt economic growth, but the Fed remains committed to lowering interest rates to more normal levels, given the current economic situation.
The Fed believes that the current level of interest rates is still helping to stimulate the economy and that key central bankers, including Fed Chairman Jerome H. Powell, want to see interest rates rise. a so-called "neutral" level that does not stimulate or curb growth. Given the improvement in the Fed's valuation relative to the economy, Wall Street estimates that a rate hike in December is almost certain.
"I put it very likely – probably at 95%," said Diane Swonk, chief economist at Grant Thornton. "It's a Fed that is ready to continue removing adjustment measures, but it's important to say that rates are not yet tight."
Thursday, Powell held its last meeting without a press conference, just after, to further explain the view of the Fed on the economy, markets and interest rates. Powell will speak after the December meeting and after each meeting next year, a first for a Fed president and a sign of his commitment to making the bank as transparent as possible. It also gives him a chance to respond to Trump and other critics.
As the economy grows and wages rise at their fastest pace in almost a decade, inflation may accelerate and the Fed may need to raise rates even more quickly. Swonk expects four rate hikes next year – one more than the Fed predicts – because it believes inflation will be above the Fed's 2% target and the Fed will act quickly to contain it.
Trump is generally expected to continue to criticize the Fed for raising rates, but so far, Powell has stayed the course and has not reacted. Behind the scenes, Powell has forged close ties with Republicans and Capitol Hill Democrats, who control the Fed. Powell has met frequently with Democrats in the House and the change of power in this House should not hinder the Fed.
"If Trump's public criticism of the Fed for too much tightening is likely to have an impact on their deliberations, I think it would give the Fed more incentive to raise rates than to simply show it. its independence, "said George Selgin, senior fellow at the Cato Institute.
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