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Business

Fed keeps rates unchanged ahead of election

Days before Americans go to the polls to elect a new president, the US central bank decided to keep interest rates unchanged and wait "for the time being." It, however, hinted at a possible rate hike in December.

In its last policy move before the November 8 presidential election, the US Federal Reserve on Wednesday decided to keep its benchmark interest rate unchanged - in a range of 0.25 percent to 0.50 percent.

The Fed's rate-setting committee, however, signaled that a rate raise could be announced in December as the economy gathers momentum and inflation picks up.

Fed policymakers said the US economy had gained steam and job gains remained solid. They also expressed more optimism that inflation was moving toward their 2 percent 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.

Today's Fed statement closely resembled the one issued after its September meeting, noting that the job market has continued to strengthen and that economic activity has picked up. The Fed had been widely expected to leave rates alone Wednesday, in part to avoid any perception of affecting next week's vote.

Raising rates so close to an election - one in which raw feelings over the economy are on prominent display and Republican candidate Donald Trump has attacked the Fed - could have invited controversy that risks making the Fed's job harder.

Gaining momentum

Analysts also noted that whether the Fed raised rates this week or not until mid-December would make little economic difference. With inflation still running below the Fed's 2 percent target, some Fed officials have said they think they have room to continue pursuing an extremely gradual approach to rate increases.

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.

While investors had all but discounted a move on interest rates this week, they overwhelmingly see the Fed raising borrowing costs next month.

In September, Fed Chair Janet Yellen said that a move before year's end was likely as long as US employment and inflation continued to strengthen. Since then, job gains have continued at a solid rate and inflation has ticked higher, putting both close to the Fed's long-run targets. The economy also has gained momentum, growing at a 2.9 percent annual pace in the third quarter after a fairly sluggish first half.

A rate hike next month would mark a resumption of the increases the Fed began in December last year, after having left its benchmark rate at a record low near zero for seven years.

sri/dk (Reuters, AP, AFP)

 

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