Reduced market turbulence and less economic uncertainty could mean a rate increase in December.
CMC's Sheldon Slabbert breaks down the Fed's decision on NBR Radio and on demand on MyNBR Radio.
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US Federal Reserve officials have kept short-term interest rates unchanged near zero but have lifted the chances of raising rates at their final 2015 meeting in December.
In a statement following a two-day policy meeting, Fed officials suggested they had become less concerned in recent weeks about turbulent financial markets and uncertain economic developments overseas.
They also pointed specifically to the next meeting as a time when they would be assessing whether it was time to raise rates.
“In determining whether it will be appropriate to raise [interest rates] at its next meeting, the [Fed] will assess progress – both realised and expected – toward its objectives of maximum employment and 2% inflation,” the Fed says in its statement.
References in the September statement to market turbulence and global developments as a potential restraint on US economic activity have been dropped in the latest version.
But it is still monitoring international financial markets and developments, meaning it isn’t yet confident these threats – such as the economic slowdown in China – have fully receded.
Still, officials pointed to “solid” growth rates in consumer spending and business investment and improvements in housing as bright spots in recent economic developments.
The Fed pushed short-term interest rates to zero in December 2008 and has kept them there for 82 straight months.
Officials began the year signalling a rate increase was likely in 2015 as the job market improved and slack in the economy diminished.
Though job growth largely lived up to hopes, inflation has been lower than officials expected, stalling the Fed’s plans to raise interest rates.
In the past month, the Dow Jones Industrial Average rose 5% in a sign financial markets stress has dissipated. Yields on 10-year Treasury notes have dropped, as has the cost of investment grade corporate debt, while the US dollar has strengthened.
One official, Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissented, as he did in September. He wants to raise the Fed’s target interest rate by a 0.25 percentage point.
The Fed’s next meeting is on December 15-16 after which chairwoman Janet Yellen will hold a press conference.
