June 19, 2013
WASHINGTON — The Federal Reserve on Wednesday continued its slow march toward higher interest rates, signaling that it remains on track to raise its benchmark interest in December for the first time this year but holding off on an increase this month.
After a two-day meeting of its policy-making committee, the Fed delivered the expected news that it would not adjust rates during the final days of a contentious presidential election. But the Fed’s post-meeting statement reinforced expectations that Fed officials do not plan to wait much longer.
“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’s policy-making committee, the Federal Open Market Committee, said.
The language was carefully calibrated to go just a little further than the Fed’s statement after its previous meeting in September.
The Fed’s assessment of economic conditions was also just a little more upbeat than the September statement. The most significant change reflected evidence of stronger inflation. The November statement said inflation “has increased somewhat,” rising closer to the Fed’s preferred annual pace of 2 percent.
The health of the economy has continued to improve. The unemployment rate stood at 5 percent in September, close to a historically normal level. Inflation rose 1.2 percent over the 12 months ending in September, up from 0.8 percent during the 12 months ending in July. And the economy expanded at an annual pace of 2.9 percent in the third quarter.
Two Fed officials dissented. Esther L. George, president of the Federal Reserve Bank of Kansas City, and Loretta J. Mester, president of the Federal Reserve Bank of Cleveland, both voted to raise rates a quarter-point. But Eric Rosengren, the president of the Federal Reserve Bank of Boston, who voted to raise rates in September, this time voted with the majority.
Mr. Rosengren said before the meeting that he did not see much difference between raising rates in November and raising rates in December, suggesting he was willing to wait a few more weeks for the Fed to act.
The Fed signaled after its last meeting in September that it would raise rates “relatively soon,” as long as economic growth continued. But it was widely anticipated that the Fed would not move at its November meeting, just days before a contentious presidential election.
Investors expect a December increase. The chances of a rate increase, derived from asset prices, stood at almost 75 percent Wednesday morning, according to the CME Group.
Three Fed presidents voted for a rate increase at the Fed’s September meeting, an unusually large bloc of dissenting votes for an organization that prizes consensus. Since then, the internal pressure for higher rates has continued to build. The regional reserve banks can signal support for raising the Fed’s benchmark rate by voting to raise a separate rate, called the discount rate. Nine of the 12 banks voted to raise the discount rate in the last round of voting, in September.
Higher rates slow economic growth. But proponents of a rate increase argue that raising rates slowly could extend the current economic expansion. If the Fed waits, they say, it may then need to raise rates more sharply, which has often pushed the economy into recession.
“If we wait too long to start raising rates, I don’t think we will have the luxury of moving as gradually as I would like,” Mr. Rosengren said in a recent interview.
But a December increase is not a foregone conclusion. The Fed has repeatedly backed away from planned increases when the economic data has taken a turn for the worse. Officials entered the year predicting four rate increases; if they do move in December, it would be the first.
Original Article: http://www.nytimes.com/2016/11……html?_r=0
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