Federal Reserve leaves rates but hints at increase by year-end

A divided Federal Reserve left its policy rate unchanged for a sixth straight meeting, saying it would wait for more evidence of progress toward its goals while projecting that an increase is still likely by year-end.

“Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in its statement yesterday after a two-day meeting in Washington.

“The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”

The decision extends US central bankers’ run of getting cold feet amid risks from abroad and inconsistent signs of economic strength.

Now the focus may shift to December as the Fed’s likely last chance to raise interest rates in 2016 — a move that depends on how the economy, inflation and markets fare in the months surrounding a contentious presidential election.

Three officials, the most since December 2014, dissented in favour of a quarter-point hike.

Esther George, president of the Kansas City Fed, voted against the decision for a second straight meeting. She was joined by Cleveland Fed president Loretta Mester, in her first dissent, and Eric Rosengren, head of the Boston Fed, whose previous dissents called for easier policy.

The US central bank’s so-called “dot plot”, which it uses to signal its outlook for the path of interest rates, showed that officials expected one quarter-point rate increase this year.

Three policymakers projected that keeping rates unchanged this year would be most appropriate. Officials scaled back expectations for hikes in 2017 and over the longer run.

Policymakers see two rate hikes next year, down from their June median projection of three. The Fed said that the US labour market will “strengthen somewhat further”. It also repeated that it “continues to closely monitor inflation indicators and global economic and financial developments.”

Policymakers also reiterated that they expect inflation to rise to their 2% goal over the medium-term.