As expected, the Federal Open Market Committee (FOMC) left rates on hold at a target range of 1 to 1-1/4 percent.
The statement noted the disruptions to economic activity and inflation caused by the late-summer hurricanes. Outside of this, the overall economic outlook remained unchanged, the labor market continues to strengthen, but inflation remains “soft” and below its 2% target.
Key Implications
There is very little to comment on in this statement. As broadly expected, the Fed held the line on rates and noted, once again, the dilemma between a strengthening economy and stubbornly weak inflation.
The inflation outlook will be central to the conduct of monetary policy over the next year. As some of the idiosyncratic factors weighing on price growth diminish, and the unemployment rate continues to push further below its natural rate, inflation is likely to gain traction in the year ahead. The Fed should see enough evidence for this proposition when it meets next in December, allowing them to raise rates by 25 basis points.
