Fed Likely on Hold, but Could Give Clues on Possible December Rate Rise

By Harriet TorryFeaturesDow Jones Newswires

Federal Reserve officials are unlikely to change short-term interest rates at their two-day policy meeting that concludes Wednesday, but they could provide clues on whether they remain on track to raise borrowing costs again before year's end. Fed Chairwoman Janet Yellen isn't scheduled to hold a press conference after the meeting, and officials aren't releasing new economic projections. This leaves only the policy statement to parse. Here are four things to look for in the release, scheduled for 2 p.m. EDT Wednesday:

Is a December Rate Rise Still in Play?

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At their September policy meeting, Fed officials left rates unchanged in a range between 1% and 1.25% and penciled in one more quarter-percentage-point rate rise in 2017. In her most recent public remarks, Ms. Yellen kept the door open to another rate move this year, saying the "ongoing strength of the economy will warrant gradual increases."

But she didn't say when the next move was likely. Market expectations for a rate increase in December are already high, and Fed officials have done little to dispel them. So they might see no need at this meeting to send a strong signal about the timing of the next increase. Two years ago, officials said in their October 2015 statement that a rate increase might be appropriate "at the next meeting" and went on to raise rates then. They also could signal that a rate increase is on the table by strengthening their assessment of economic growth and inflation.

How's the Economy Doing?

The latest reading on the economy's overall health suggested growth remains strong, despite the hurricanes that hit the Gulf Coast in late summer, and Fed officials might pep up the wording of their statement to reflect that. Gross domestic product, the broadest measure of goods and services produced in the U.S., rose at a 3% annual rate in the third quarter, the Commerce Department said Friday.

Robust consumer spending, a strong labor market and better growth overseas are likely to give Fed officials comfort as they debate when to next raise rates. While the U.S. shed 33,000 jobs in September -- largely attributed to the recent hurricanes -- Ms. Yellen said recently that other aspects of the labor market were strong that month. She noted a decline in the unemployment rate to 4.2%, and said news on average hourly earnings was "encouraging." A more optimistic assessment of economic conditions in the coming statement could serve as a prelude for a rate increase in December.

The Inflation Question

Inflation is the major potential sticking point for officials in any decision on whether to raise rates. After a small spurt in price pressures early this year, inflation has underperformed the Fed's 2% annual inflation target for seven months. The Fed's preferred price gauge, the personal-consumption expenditures price index, rose 1.6% on year in September, but that was largely because of a storm-related surge in gasoline prices. So-called core prices, which exclude volatile food and energy items, were up 1.3%.

Ms. Yellen has described the inflation undershoot in recent months as a "mystery," although her "best guess is that these soft readings will not persist." Some officials have said they won't support another rate increase until they see inflation pick up. Read the statement for any language tweaks that could signal whether they are feeling more confident inflation will eventually hit the target.


It is unlikely any voting members of the Fed's policy committee will dissent at this meeting, since the group is likely to leave rates unchanged. But somebody might dissent if the committee wants to send a signal that a December rate increase is likely.

Minneapolis Fed President Neel Kashkari dissented at the Fed's March and June meetings when it raised rates. Dallas Fed President Robert Kaplan didn't dissent at those meetings, but he has said he wants to see more inflation before raising rates again.

Also, this will be Randal Quarles's first meeting as Fed governor and vice chairman for supervision since joining the central bank's board in October. Mr. Quarles hasn't spoken publicly about his views on monetary policy and the economy since taking up his new role, although he previously has criticized the Fed's low-rate policies on financial stability grounds and advocated the central bank use a formula for setting monetary policy.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

November 01, 2017 05:47 ET (09:47 GMT)