Date
8 December 2016
The Fed says the US economy is gaining momentum and inflation is picking up toward its 2 percent target. Photo: Reuters
The Fed says the US economy is gaining momentum and inflation is picking up toward its 2 percent target. Photo: Reuters

Fed holds rates steady, flags December hike

The Federal Reserve has kept interest rates unchanged in its last policy decision before the US election but signaled a hike in December as the economy gathers momentum and inflation picks up.

The US central bank said the economy is gaining steam and job gains remain solid, Reuters reports.

Policymakers also expressed more optimism that inflation is moving toward their 2 percent target.

“The committee judges 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 toward its objectives,” the Fed said in a statement after a two-day meeting.

That suggests the bar is low for a rate increase at the Fed’s final policy meeting of the year in mid-December, which has largely been factored in by financial markets.

US stocks extended earlier losses and Treasury yields fell after the release of the Fed statement. The US dollar briefly pared losses before falling further against a basket of currencies.

“You are still pointing to a December hike, they just didn’t pre-commit to it,” said John Canally, investment strategist and economist for LPL Financial in Boston.

In the statement, the Fed’s increasing confidence that prices were moving higher was reflected in its view that “inflation has increased somewhat since earlier this year” and the removal of its previous reference to inflation remaining low in the near term.

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