Fed leaves rates unchanged at policy meeting

Saul Loeb | AFP | Getty Images

Federal Reserve Chair Janet Yellen speaks during a press conference after the Federal Open Market Committee meetings in Washington, DC, on September 20, 2017.

In fact, the committee statement noted that the “labor market has continued to strengthen and that economic activity has been rising at a solid rate despite hurricane-related disruptions. Although the hurricanes caused a drop in payroll employment in September, the unemployment rate declined further.”

The statement noted that gasoline prices rose following the storms, but other inflation indicators remained muted. The committee conceded that inflation is still “running below 2 percent,” the target that the Fed feels is most suited to healthy growth.

“Hurricane-related disruptions and rebuilding will continue to affect economic activity, employment and inflation in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term,” the statement said.

The Fed already has raised rates twice this year as part of a program for a slow but steady normalization of monetary policy. In addition to the rate hikes, the Fed in October began the process of gradually reducing its $4.5 trillion balance sheet, which mostly contains bonds the central bank purchased to stimulate the economy by lowering mortgage rates and steering investors to risk assets like stocks and corporate bonds.

Post-meeting documents Wednesday made only brief mention of the balance sheet reduction, in which the Fed will allow a capped level of proceeds from its maturing bonds to roll off each month. The statement merely said the program “is proceeding.”

Despite the efforts to tighten policy, economic conditions have remained loose and the stock market continues to rally. Some FOMC members have worried about the lack of impact the Fed’s moves have had and fear that delaying tightening could promote asset bubbles and financial instability.

This week’s gathering likely will be the last before markets find out who will be the next Fed chair. President Donald Trump is expected to release his decision Thursday afternoon, with only a slight chance that Chair Janet Yellen will be reappointed. Markets expect the president to name Fed Governor Jerome “Jay” Powell to lead the central bank.