Federal Reserve maintains rates but sets stage for December hike

The Federal Reserve kept interest rates unchanged yesterday in its last policy decision before the US election, but signalled it could hike in December as the US economy gathers momentum and inflation picks up.

The US central bank’s rate-setting committee said the economy gained steam and job gains were solid. Fed policymakers also expressed more optimism that inflation was moving towards its 2% target.

“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 said in a statement following a two-day policy meeting.

That suggests the bar appears low for a rate rise at the final policy meeting of the year in mid-December.

The Fed’s increasing confidence that prices were moving higher was reflected in its view that “inflation has increased somewhat since earlier this year” and the removal of its previous reference to inflation remaining low in the near term.

The policy decision came less than a week before an increasingly uncertain presidential election.

Investors had all but discounted a move this week, but see the Fed raising borrowing costs next month. In September, Fed chair Janet Yellen said a move before year’s end was likely as long as US employment and inflation continued to strengthen.