About BUSINESS: Federal Reserve Makes No Move on Interest Rate

The Federal Reserve Board shocked no one and pleased nearly everyone by failing to raise interest rates at its recent Board meeting this week.

Interest rates remained unchanged and the Fed announced a timeline for reducing its $4.5 trillion balance sheet.

The Federal Open Market Committee unanimously voted to hold the federal funds rate between 1.00% and 1.25% and begin the process of shrinking its balance sheet by October.

To have raised interest rates would have destabilized the marketplace for money and the underpinnings of the economy.

Every raise the Fed makes causes the price for money to increase for those seeking home mortgages or business loans.

The spate of damaging and costly hurricanes will impact the economy in the short term but have little to no effect in the long term, said the Fed.

“Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship,” the Fed wrote in its statement. “Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term.”

Unemployment has hovered just below 5% for the past year, a level many economists consider to be near full employment. The unemployment rate sank to 4.4% in August, near its lowest level in a decade, and non-farm payrolls grew by a less-than-expected 156,000.

“Job gains have remained solid in recent months, and the unemployment rate has stayed low.” the Fed wrote. “Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent The Fed noted that the recent hurricanes may also impact inflation in the short run.

“Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily; apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term,” the central bank wrote in its statement.

Projections for the total number of expected rate hikes in 2017 remained unchanged with one more quarter-point raise this year. Officials also forecast three rate hikes in 2018, with the rate reaching 2.9% in 2020, just above its long-run goal of 2.8%.

The Fed’s expectations for GDP growth increased slightly to 2.4% in 2017, hitting the long-run goal of 1.8% by 2020.  Meanwhile short-term forecasts for core PCE inflation fell to 1.5% this year, but officials predict it will rise to 2% by 2019.

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