Markets expect that the Federal Reserve will hold off on raising its interest rate target after the conclusion of a two-day meeting in Washington on Wednesday, thanks in part to officials’ desire not to act right before an election. But investors anticipate that the central bank will raise rates and tighten monetary policy when they meet in December.
A survey of economists published by CNBC Tuesday found a unanimous expectation that the Fed would not raise its target from under 0.5 percent this week, and a majority opinion that the delay would be attributable to the election next week.
“The Fed never wants to be seen as an influencer of a presidential election,” said Rob Morgan, chief investment officer for the Sethi Financial Group, in response to the survey. “They won’t raise rates at the November meeting.”
The vast majority of economists, however, do expect the Fed to move in December. Investors on Tuesday placed about a four-in-five probability of the Fed raising short-term interest rates by at least a quarter percentage point.
If the Fed did follow that expectation, it would be the second year in a row in which it raised rates only in December. Last December’s rate hike, from near zero to a range between 0.25 percent and 0.5 percent, was the first time the Fed raised rates since the financial crisis.
With unemployment at 5 percent and growth appearing to perk up in the third quarter, the broad economic conditions are ones that would usually prompt the Fed to tighten monetary policy, although there are some signals, such as still-low inflation, that point the other way.
Chairwoman Janet Yellen, however, has suggested that with inflation still subdued, the central bank may try to run a “high-pressure economy” with loose money to bring workers off the sidelines and into positions.
