The Federal Reserve announced Wednesday afternoon that it would not raise its target for interest rates, pushing its zero rate policy into a seventh year.
The central bank also raised expectations for its next meeting in December, saying that it would determine whether it was “appropriate” to raise rates then.
December is the earliest investors had expected such a move. Following Wednesday’s decision, odds for the Fed to raise rates rose to 50-50, as implied by bond market prices.
There have been conflicting sighs about the possibility of a rate hike at the December meeting.
Inflation has remained low in recent months, defying Fed members’ stated determination to see it rise to their 2 percent target.
There are also enough threats facing the economy, especially from slowing growth overseas, to cause doubt about whether the economy will heat up enough to send inflation upward if the Fed tightens the money supply.
Earlier this month, two of Chairwoman Janet Yellen’s colleagues on the Fed’s Board of Governors warned that they don’t see the economy as strong enough to raise rates this year, especially given the risks to the U.S. posed by slowing growth in China and elsewhere overseas.
Wednesday’s announcement, however, downplayed the possibility of global pressures slowing U.S. growth. The announcement excised a reference to overseas threats included in September’s announcement, although it did say that members would be watching growth abroad.
Yellen herself has not spoken publicly on monetary policy since September, when she indicated that a rate hike in 2015 was still likely.
If she still believes a December rate hike is appropriate, she will have plenty of time to prepare investors before the December meeting. She is scheduled to testify in the House next week, give a public speech in Washington in early December, and then testify again on Capitol Hill on Dec. 3, before the meeting begins Dec. 15.
One member of the committee voted against Wednesday’s decision to keep rates at zero. Federal Reserve Bank of Richmond president Jeffrey Lacker dissented for the second straight meeting, on the grounds that they should have raised rates.
As Yellen debates the merits of a December lift-off with her colleagues, she’ll face ever-growing pressure to bring an end to the emergency monetary policy stimulus that is still in place as the unemployment rate falls toward pre-recession levels.
“The Fed needs to move forward with normalizing monetary policy sooner rather than later,” said Rep. Kevin Brady of Texas, the top House Republican on the Joint Economic Committee. Brady suggested that if the Fed is not comfortable raising rates, it should scale back its $4.5 trillion balance sheet, the result of repated rounds of large-scalle bond purchases meant to boost the economy.
