Federal Reserve Holds Rate, Says Inflation Has Increased

    The U.S. Federal Reserve left its benchmark target for the federal funds rate steady at 0.25-0.50 percent, as widely expected, and reiterated its guidance that “the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress towards its objectives.”

    The Federal Open Market Committee (FOMC), the Fed’s policy-making body, also repeated its view from its previous statement in September that the U.S. labour market had continued to improve and economic growth had picked up from the “modest pace” seen in the first half of the year.

    But the FOMC also acknowledged that “inflation has increased somewhat,” a shift in tone from its previous policy statement when it it merely noted that inflation continued to run below its longer-run objective of 2.0 percent.

    U.S. consumer price inflation rate rose to 1.5 percent in September from 1.1 percent in August, with core inflation easing slightly to 2.2 percent from 2.3 percent.

    The members of the FOMC were once again split, with Esther George and Loretta Mester voting for a quarter-point rate hike while the other eight members voted to maintain rates.

    George, president of the Kansas City Fed, already voted to raise rates in March and April but then switched her vote to keep the rate in June.

    In July George then again voted to raise rates and repeated this stance in September, when she was also joined by Mester and Eric Rosengren.

    U.S. Gross Domestic Product grew by a better-than-expected annualized rate of 2.9 percent in the third quarter, or a year-on-year rate of 1.5 percent, in the third quarter compared with an annual rate of 1.3 percent in the second quarter, providing further evidence the economy is on solid footing.

    Exports along with stronger inventory building were the main contributors to third quarter growth.
    But despite accelerating growth, economists are still looking for average growth this year of around 1.6 percent, down from 2.6 percent in 2015, due to a weak first quarter.

    The U.S. jobs market is also improving jobs market, with U.S. employers in September hiring 156,000 workers.

    The U.S. Federal Reserve issued the following statement:

“Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid. Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased somewhat since earlier this year but is still below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

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