FOMC Keeps Alive Interest Rate Hike For Later This Year

The spread to keep rates unchanged narrowed sharply in what is otherwise a mixed FOMC statement that does keep alive a rate hike later this year. The assessment of the economy is little changed from the July meeting with the economic pace described as moderate and with perhaps a little less emphasis on the strength of the labor market. Household spending is once again described as strong and business investment is once again described as soft. The inflation assessment is unchanged, described as running below target. Global risks are once again cited but again not in detail.

What is different is the degree of support for an immediate rate hike as Cleveland's Mester and Boston's Rosengren joined Kansas City's George, making it a 3 to 7 vote to keep rates unchanged. And in a possible indication of a future hike, the statement now includes the phrase that economic risks "appear roughly balanced" which was the phrase that the FOMC included before hiking rates back in December.

This meeting includes quarterly projections which also hint at an approaching rate hike as 10 of the 17 FOMC forecasters see one rate hike coming this year. Yet other forecasts are dovish with only 2 hikes seen next year, down from 3 at the June meeting. Growth and inflation forecasts have been shaved here and there. Both stocks and bonds are moving slightly higher in early reaction to the statement.

Recent History Of This Indicator:
The Federal funds rate target has been unchanged at a midpoint of 0.375 percent between a range 0.25 to 0.50 percent since December last year, when the FOMC launched what was expected to be a series of rate hikes through this year. Recent growth data have been solid, led by employment and including consumer spending, but global demand has been soft as has business investment especially in the energy sector. Inflation pressures have been minimal though the latest Beige Book, prepared in advance for this meeting, did cite emerging evidence of wage pressures. At the last FOMC back in July, the committee voted 9 to 1 to keep rates unchanged.