Fed Hold Interest Rates, Market Expects December Rise

The Fed chose to maintain the target range for the federal-funds rate at 1.0% to 1.25%, despite growth in both household spending and business investment

Jim Sinegal 21 September, 2017 | 8:43AM
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As expected, the Federal Reserve’s Open Market Committee (FOMC) stood firm on interest rates today and also announced that they're going to begin their balance sheet normalisation process next month. Even though inflation remains below their 2% target, they also indicated that there will be another rate increase some time in 2017, and the market seems to think that's likely to occur in December.

The Fed chose to maintain the target range for the federal-funds rate at 1% to 1.25%, despite growth in both household spending and business investment, as inflation measures remain below its 2% target.

This action is consistent with our thesis that yield curve normalisation will continue at a relatively modest pace due to a combination of trends in demographics, employment conditions, and credit demand. As long as inflation remains low, the Federal Reserve could choose to raise rates but does not need to raise rates, an important distinction, in our view. Indeed, the latest statement reveals that the FOMC expects short-term rates to “remain, for some time, below levels that are expected to prevail in the longer run.”

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Jim Sinegal  Jim Sinegal is the associate director of the financial team at Morningstar.

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