The Federal Reserve decided to hold interest rates steady for the time being due to global economic uncertainty that could slow the economy and keep inflation subdued. In a statement, the Fed said “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”
The vote on the decision was 9-1. Richmond Fed President Jeffrey Lacker dissented. His vote is unsurprising as he has been pressing the U.S. central bank to hike rates for some time.
Apparently there was some movement toward raising rates, but Federal Reserve Chairwoman Janet Yellen thought differently presented the facts.
“In light of the heightened uncertainties abroad and the slightly softer expected path for inflation, the committee judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2% in the medium term,” she said in an introductory statement to the press conference.
The Fed will meet twice more Oct. 27-28 and Dec. 15-16 before the end of the session and raising the rates seems to be a forgone conclusion, but December seems to be the most likely scenario. Some analysts view October as the month when near zero rates will end.
Stocks were modestly higher after the decision was announced.
The S&P 500 rose 7 points, or 0.4%, to 2,003, with seven of its 10 main sectors trading higher. Telecoms got hit, while utilities and energy care stocks led gains.
The Dow Jones Industrial Average rose 43 points, or 0.3%, higher to 16,780. The Nasdaq Composite gained 30 points, or 0.7%, to 4,930.
While the labor market statistically is getting stronger, new applications for U.S. unemployment benefits fell last week, inflation remains well below the Fed’s desired target of 2%, largely due to a drop in energy prices.