Federal Reserve holds rates as two officials seek another increase
CME futures favour a December increase after a divided vote keeps the benchmark range at 3.75 to 4 per cent.
Theo Marchetti
The Federal Reserve held interest rates steady on Wednesday, while the CME exchange's FedWatch tool put December rate-increase odds at 85.6 per cent at 5:30 a.m. CDT on Thursday. The 10-to-2 decision kept the target range at 3.75 to 4 per cent.
The Federal Open Market Committee said accumulating more information would help determine the policy stance needed to return inflation to its 2 per cent goal. It described economic activity as expanding at a strong pace, with resilient domestic spending and robust capital investment.
Lisa D. Cook and Beth M. Hammack preferred a quarter-percentage-point rise on Wednesday. CME FedWatch assigned a 14.4 per cent probability to unchanged December rates at 5:30 a.m. CDT on Oct. 29, making an increase the market's favoured outcome.
Chair Kevin Warsh said financial and credit conditions had tightened for some businesses and households since September's policy action. His account put borrowing conditions alongside continued strength in technology investment, rather than describing a broad retreat in spending.
September's Increase Gives Way To A Divided Hold
The Sept. 16 statement recorded a 12-to-0 vote to raise the target range by a quarter percentage point. October's hold kept that range intact, while Cook and Hammack sought another increase at this meeting.
The economic assessment also changed from September's description of a solid pace of expansion to October's strong pace. Both statements described inflation as elevated and said job gains had kept pace with the workforce.
September's statement said its rate increase would support a timelier return to the inflation goal. October's statement instead placed the next policy judgment on information still to come, without committing to a December increase.
"And while overall financial conditions are tighter, I’m unwilling and unable to call them tight," Warsh said in his Oct. 28 opening statement.
Warsh said market participants were becoming more discerning in allocating capital. He described capital expenditures as a historically high share of gross domestic product, with high-tech investment leading the acceleration and investment broadening into other categories.
For investors assessing rate-sensitive sectors, his account combines tighter financing conditions for some borrowers with continued investment growth. The committee's hold leaves the benchmark range unchanged while its two dissenters favour additional tightening.
Warsh also said energy and related prices had moved higher in recent weeks. He said the Fed's task was to prevent those sectoral price changes from broadening across the economy and to keep inflation expectations anchored.
Read more: World Bank forecasts 23 per cent commodity-price rise as energy costs climb
The Fed's next scheduled meeting is Dec. 8 and 9, with updated economic projections due alongside the policy decision. That meeting will determine whether the committee keeps the current range or changes it after reviewing the intervening data.
