Federal Reserve meets this week: what to know

Andrew Cummings
November 12, 2018

Data since officials last met in September "indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate", the Fed's rate-setting committee said in a statement Thursday.

The statement reflected little change in the US central bank's outlook for the economy since the last policy meeting in September, with inflation remaining near its 2 percent target, unemployment falling and risks to the economic outlook appearing to be "roughly balanced".

Traders are now see only a 7.2 percent chance the Fed will raise rates by a quarter-point at today's meeting, according to CME's FedWatch, down from 7.8 percent on Wednesday.

"Interest rates are still accommodative, but we're gradually moving to a place where they will be neutral", Powell said during an interview with PBS.

Some Fed officials also believed that USA interest rates might have to rise high enough to prevent economic overheating, according to the minutes of the Fed's September policy meeting released last month. Most economists expect the Fed to next increase rates in December. GDP growth this year has averaged 3.3 percent for the first three quarters and is expected to come in around 3 percent for the final three-month period of 2018.

In recent weeks, financial markets have been gripped by worry and volatility, and some analysts think that in its statement Thursday the Fed may take note of that anxiety as a potential risk to economic growth. Higher interest rates can make equities less attractive investments.

But Fed policymakers also have begun debating whether the economy has reached a plateau as the stimulus from the Trump administration's $1.5 trillion tax cut package and increased federal spending begin to fade.

The Fed also notes that the United States unemployment rate has declined since its September meeting, with the labor market further strengthening and economic activity continuing to grow.

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.

The central bank repeated that it expected "further gradual increases" in the key interest rate as the economy continues to expand but the statement gave no clear signal on whether it would have to move more aggressively to head off inflation.

The Fed's decision Thursday was approved 9-0 by its voting policymakers.

The Fed's statement indicated it would hold interest rates steady, but its mention of the moderation of the pace in business investment may presage a slowdown in overall economic 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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