The Federal Reserve left interest rates unchanged and stayed on course to hike in December as strong economic growth, higher tariffs and rising wages look set to spur inflation.
The central bank said “economic activity has been rising at a strong rate” and job gains “have been strong,” acknowledging a drop in the unemployment rate, while repeating its outlook for “further gradual” rate increases in its statement Thursday following a two-day meeting in Washington.
Risks to the outlook appear “roughly balanced,” the Federal Open Market Committee said, leaving that language unchanged from the prior meeting in late September. Inflation expectations, which have slipped slightly in recent weeks according to some measures, were described as “little changed, on balance,” the same as in the last statement.
By keeping the door open to a fourth 2018 hike in December, officials are sticking to their gradual upward path, trying to prolong the second-longest U.S. expansion on record without making an error. Leaving monetary policy too loose risks stoking excess inflation and asset bubbles, while tightening too fast could cause a recession.
The unanimous 9-0 decision left the benchmark federal funds rate in a target range of 2 percent to 2.25 percent, following eight quarter-point hikes since late 2015. The interest rate the Fed pays banks on excess reserves — a tool for keeping the effective funds rate within the Fed’s target range — was left unchanged at 2.2 percent, as expected.
In one of the only other tweaks to the statement, the FOMC said growth in business fixed investment has “moderated from its rapid pace earlier in the year,” compared with the previous assessment that it has “grown strongly.” Third-quarter data showed non-residential investment increased at the slowest pace in almost two years.
Meanwhile, household spending “has continued to grow strongly,” the Fed said, echoing its previous assessment of consumption, which accounts for about 70 percent of the economy.