Fed hands down rate hike decision

by Ryan Smith21 Sep 2016
As expected, the Federal Reserve held interest rates steady this month – but experts say there could still be a rate hike in December.

The Federal Open Market Committee decided at its meeting to hold rates steady yet again, its hand stayed by lukewarm inflation and recent weak economic data. The decision to hold off on a rate increase came as no surprise to most observers; economists polled by Reuters ahead of the meeting thought a hike unlikely. However, most of those polled expected a rate increase at the Fed’s December meeting.

“The last thing the Fed wants is to disrupt financial markets with a big surprise,” Torsten Slok, chief international economist at Deutsche Bank, told Fortune.

The FMOC apparently agreed. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives,” it said in a news release. “The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”

The Fed raised its benchmark interest rate to a range of 0.25% to 0.50% in December, after nearly a decade of holding rates near zero. That hike had been intended as the first of several small increases over the course of the next year. But weak inflation and other economic indicators have kept the Fed from following its plan, and rates haven’t been raised since.

While unemployment is low and job gains are outpacing population growth, inflation is still well under the Fed’s target rate of 2%, according to Fortune. Coupled with weak August numbers for manufacturing and the service industry, that led most economists to foresee today’s decision to hold rates steady.


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