Confident Fed Sets Stage for December Rate Increase
- 7 years ago
Confident Fed Sets Stage for December Rate Increase
“That’s happening with a whimper, but handled differently, it could’ve been a big event.”
The Fed, which has raised its benchmark interest rate twice this year, left
that rate unchanged Wednesday, but indicated that it plans a third rate increase later this year as economic conditions continue to strengthen.
So far, the Fed’s assessment of underlying conditions remains unchanged: Ms. Yellen
and her colleagues expect inflation to stabilize at its target of 2 percent a year.
Ms. Yellen said that weak inflation readings earlier this year “reflect developments
that are largely unrelated to broader economic conditions.” Similarly, she said that the Fed expected the impact of hurricanes on gas prices to increase inflation temporarily.
The Fed’s benchmark rate now sits in a range between 1 percent
and 1.25 percent, a level most Fed officials regard as providing modest encouragement for borrowing.
Expectations of a third rate increase this year strengthened after the Fed’s announcement,
rising from a 57 percent chance to a 71 percent chance, according to CME Group.
Job growth remains strong, suggesting that the work force is still expanding; wage growth is modest, suggesting employers are still able to find workers with relative ease; and inflation weakened in recent months, puzzling Fed officials and economists who had predicted
that prices would begin to rise more quickly as labor market conditions tightened.
“That’s happening with a whimper, but handled differently, it could’ve been a big event.”
The Fed, which has raised its benchmark interest rate twice this year, left
that rate unchanged Wednesday, but indicated that it plans a third rate increase later this year as economic conditions continue to strengthen.
So far, the Fed’s assessment of underlying conditions remains unchanged: Ms. Yellen
and her colleagues expect inflation to stabilize at its target of 2 percent a year.
Ms. Yellen said that weak inflation readings earlier this year “reflect developments
that are largely unrelated to broader economic conditions.” Similarly, she said that the Fed expected the impact of hurricanes on gas prices to increase inflation temporarily.
The Fed’s benchmark rate now sits in a range between 1 percent
and 1.25 percent, a level most Fed officials regard as providing modest encouragement for borrowing.
Expectations of a third rate increase this year strengthened after the Fed’s announcement,
rising from a 57 percent chance to a 71 percent chance, according to CME Group.
Job growth remains strong, suggesting that the work force is still expanding; wage growth is modest, suggesting employers are still able to find workers with relative ease; and inflation weakened in recent months, puzzling Fed officials and economists who had predicted
that prices would begin to rise more quickly as labor market conditions tightened.