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Fed signals December hike on track as Trump mulls next chair

  • Christopher Condon

    Bloomberg

Washington   /   Thu, November 2, 2017   /   09:51 am
Fed signals December hike on track as Trump mulls next chair US central bank Chair Janet Yellen (Bloomberg/File )

 Federal Reserve officials reinforced expectations for a December interest-rate increase by subtly upgrading their assessment of the US economy, a day before President Donald Trump plans to unveil his choice to lead the US central bank.

“Economic activity has been rising at a solid rate despite hurricane-related disruptions,” the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington at which they left rates unchanged as expected.

After its meeting in September the FOMC said the economy was expanding “moderately.” Wednesday’s statement marked the first time since January 2015 that the committee used the word “solid” to describe growth.

The Fed repeated its assessment that while inflation may remain “somewhat below 2 percent in the near term,” it’s expected to stabilize around the central bank’s 2 percent objective “over the medium term.”

“Any upgrade of their view on economic activity also translates into their conviction of whether inflation will rise to 2 percent over time,” said Michael Gapen, chief US economist at Barclays in New York. “They’re reaffirming the view that a December hike is in their baseline, and it’s in ours as well.”

Pricing in federal funds futures contracts prior to the release implied an 85 percent probability of a quarter-point move next month, and remained at about that level after the statement.

Chair Janet Yellen is scheduled to hold her next press briefing after the meeting scheduled for Dec. 12-13. All four Fed rate hikes since late 2015 have come at gatherings that were accompanied by a press conference, which occur at alternating meetings.

Michael Feroli, chief US economist at JPMorgan Chase & Co. in New York, said he also expected a December hike.

“There were only a few minor changes to keep it up to date with the latest economic numbers,” he said. “They did note that core inflation remains soft, but I think they had to change it -- that was kind of marking to market.”

US stocks were mainly higher and the dollar erased a slight gain after the Fed’s announcement, while Treasury yields edged higher with the 10-year note adding around two basis points to 2.37 percent. (bbn)