FOMC Review: Fed leaves policy rates unchanged, flags December rate hike

The Federal Reserve left policy rates on hold at the Federal Open Market Committee (FOMC) meeting that concluded Wednesday, flagging possibilities of a December rate hike. The central bank will continue to monitor the developments in consumer prices and the country’s labor market.

The FOMC, chaired by Janet Yellen held the Federal Funds Rate unchanged, by a majority vote in the range of 0.2-0.50 percent since last December, largely in line with markets had initially anticipated. However, there were two dissenting votes by George and Mester, each in favor of a hike to 0.50-0.75 percent.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee further expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further.

According to the statement released by the FOMC post the meeting, The Committee judged 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 statement described consumer spending as rising moderately, rather strongly, acknowledging that inflation and labor wages have shown some improvement over the past few months and growth continues to be the right track.

Neither the members, nor the statement did make any mention of a possible rate hike in the upcoming December meeting, but its urge to continuously monitor economic indicators for quite some time, indeed reflects that the Fed may be meeting market expectations in December.

Meanwhile, the market is currently pricing 78 percent chance of a December rate hike, up from 70 percent just before the statement was released. The FOMC next meets on December 13-14 and by then it will have had two more labor market reports, two retail sales reports (November data released on December 14) and a host of other hard and soft data.