(Bloomberg) — Federal Reserve policy makers left interest rates unchanged while saying the argument for higher borrowing costs strengthened further amid accelerating inflation, reinforcing expectations for a hike next month.
“The committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives,” the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington. The decision was 8-2.
Fed officials revealed growing confidence that inflation is on track to reach their 2 percent target. The central bank said Wednesday that the pace of price gains “has increased somewhat since earlier this year” and that market-based measures of inflation compensation “have moved up.” The committee also omitted previous language saying inflation would probably “remain low in the near term.”
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The decision to forgo a rate increase had been widely expected owing to the proximity of next week’s U.S. presidential election and the lack of a scheduled press briefing after this meeting. Now the focus will shift to the FOMC’s gathering in December, provided the outlook for the economy and inflation isn’t thrown into doubt over the next six weeks.
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This month’s statement said the Fed would wait for “some further evidence” of progress in the economy before raising rates, adding the qualifier “some” to language from September, a sign that officials moved incrementally closer to a hike.
Cleveland Fed President Loretta Mester and Kansas City Fed chief Esther George, two of the three officials who dissented at the committee’s September session, repeated their objection, calling for raising the federal funds target by a quarter percentage point from its current range of 0.25 percent to 0.5 percent. The third, Boston Fed President Eric Rosengren, opted to support Wednesday’s decision to hold rates steady.
When leaving rates unchanged in September, the FOMC acknowledged the case for tightening policy had “strengthened.” Minutes of the session later showed that was a “close call” for several officials who supported the decision to stand pat and wait for the economy make more progress.
Investors weren’t convinced, however, that officials would pull the trigger this week. Pricing in federal funds futures contracts earlier Wednesday implied a roughly 15 percent probability of an increase at this meeting. Traders and economists instead had their eyes on the Dec. 13-14 meeting, when futures indicated a roughly two-in-three chance of a quarter-point move.
None of the 90 analysts surveyed by Bloomberg expected a hike this week.
In addition to the uncertainties for financial markets posed by the election, many Fed watchers have said the central bank is less inclined to alter policy at a meeting, such as this week’s, that doesn’t feature a scheduled press conference from Chair Janet Yellen. The briefings follow alternating meetings.