NEW YORK, Oct 28 (Reuters) – The Federal Reserve held interest rates steady on Wednesday, awaiting further data on the path of inflation.
In a 10-2 decision, the US central bank said it would maintain its benchmark interest rate within the current 3.75%-4% range while acknowledging that inflation “remains elevated,” upgrading its assessment of the economy and hinting that further rate hikes may be coming depending on inflation.
“The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee’s 2% goal,” the rate-setting Federal Open Market Committee said in its latest policy statement. “The Committee will deliver price stability.”
Fed Governor Lisa Cook, currently targeted by President Donald Trump for removal from the central bank, dissented in favor of a quarter-percentage-point rate hike, as did Cleveland Fed President Beth Hammack, a consistently hawkish voice who also dissented in July for the same reason.
The Fed’s latest policy statement is a notable change from the September 15-16 meeting, with a hint of the sort of forward guidance Fed Chairman Kevin Warsh has said he wants to avoid.
The Fed’s assessment of the economy was upgraded to “strong” from the “solid” expansion seen as of the September meeting, while investment was still viewed as robust and job gains were keeping pace with the workforce.
REACTION:
STOCKS: US stock indexes mixed after the decision, with the Nasdaq composite down 0.1% and the S&P 500 up 0.1%.
BONDS: Treasury yields remained slightly higher on the day following the announcement, with the 2-year yield that’s most sensitive to Fed policy up 3.9 basis points to 4.776%, the 10-year yield up 5 basis points to 5.047% and the 30-year yield up 3.8 basis points at 5.338%.
FOREX: The US dollar index was up 0.02%.
COMMENTS:
JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VIRGINIA:
“The Federal Reserve just told markets that its rate hike expectations might be overzealous for what it’s likely to deliver. Data dependency is Fedspeak for “we don’t want to do anything unless we are forced to.”
KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO:
“Two dissents rather than the three or four many had expected is a dovish surprise at the margin, but an apparent upgrade in the Fed’s assessment of the economy itself should leave markets in no doubt that more tightening is coming.”
KAY HAIGH, GLOBAL HEAD, CHIEF INVESTMENT OFFICER OF FIXED INCOME AND LIQUIDITY SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK:
“We expect the Fed to resume rate hikes in December. September’s strong CPI print is a reminder that upside inflation risks remain, and the Fed is likely to look to take out further insurance. While the September dot-plot suggests just one more hike, another increase in energy prices or further strong data prints could bring additional tightening into play next year.”
CHARLIE WISE, HEAD OF GLOBAL RESEARCH AND CONSULTING, TRANSUNION, CHICAGO:
“Today’s Federal Reserve decision to leave interest rates unchanged reflects the continued balancing act between inflation concerns and an economy and employment situation that have remained relatively resilient. Despite recent inflation readings coming in higher than expected, and well above the Fed’s target levels, policymakers opted to hold rates steady as they assess the impact of the September rate increase and monitor stable labor market conditions.
“For consumers, a pause in rate hikes means credit card borrowing costs are not increasing for now, but interest rate risk has not disappeared. With future policy decisions still dependent on economic conditions, and early signals that a December rate hike may well be on the way, consumers should continue to approach credit card debt carefully. As holiday spending ramps up, it’s important to stay within a budget and avoid charging more than you can repay over one to two months. Carrying larger balances can become costly, particularly if inflation remains persistent and interest rates stay elevated for longer.”
CHRISTOPHER HODGE, CHIEF US ECONOMIST, NATIXIS, NEW YORK:
“The Fed kept rates on hold as broadly expected in October, following a hike in September, even after inflation data was higher than expected in the intermeeting period. The pause follows through on the implicit suggestion from NY Fed President Williams and Vice Chair Jefferson that consecutive hikes are not urgent at this time.
“Still, inflation remains a problem, growth remains solid, and the unemployment rate is stable – and a hike in December is now likely a foregone conclusion. If December is close to certain, the question must be asked, why delay the inevitable? In September, Warsh said that the Fed hike removed a “dose of accommodation” and perhaps the committee feels that in the intermeeting period, asset volatility and some wobbly tech names removed another. The statement suggests the Fed wants to get more data before moving again.
“The primary question will likely be the rationale for the pause after worse than expected inflation data in the inter-meeting period. Warsh will likely deflect and reiterate the line that this Fed looks at trends and is not beholden to specific point data. This will be unilluminating and unsatisfactory, but the overwhelming most likely answer. Anything that deviates from this answer will be insightful.”
(Reporting by Suzanne McGee, Saeed Azhar, Saqib Ahmed; editing by Colin Barr)
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