Fed Leaves Rate Unchanged, Opens Door to December Rate Hike

The U.S. Federal Reserve left interest rates unchanged on Wednesday as widely expected while adding Hurricanes Harvey and Irma will not have a much longer-term impact on overall economic activity. Many investors probably noticed this in last week’s release of an estimate of third quarter GDP.

The Fed’s post-meeting news statement revealed to indicate that the Fed would hold off on raising rates again soon. At this time, the CME FedWatch took is showing the chances of a Fed rate hike in December at nearly 100 percent.

The Federal Open Market Committee, the central bank’s monetary policymaking arm, held its benchmark interest rate target between 1 percent and 1.15 percent. The futures markets also figure the Fed to pass a quarter-point rate hike at the December meeting, also the FOMC did not drop any strong hints in today’s statement.

The FOMC also commented positively on the current state of the economy despite the impact of the hurricanes which skewed in the data in a few key areas.

As far as the labor market is concerned, Nonfarm payrolls, for example, declined in September by 33,000, mostly due to the effect of the hurricanes. The Fed said this effect will pass.

The FOMC said, “Labor market has continued to strengthen and that economic activity has been rising at a solid rate despite hurricane-related disruptions. Although the hurricanes caused a drop in payroll employment in September, the unemployment rate declined further.”

The Fed’s monetary policy statement also mentioned the impact on the storms on gasoline prices which effected inflation. Although the central bank still saw it as “running below 2 percent,” the Fed’s growth target.

“Hurricane-related disruptions and rebuilding will continue to affect economic activity, employment and inflation 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,” the statement said.

In summary, the Fed left interest rates unchanged, but opened the door to a rate hike in December.