Fed Keeps Rate at Record Low But Will Consider December Hike

The Federal Reserve is keeping its key short-term interest rate at a record low in the face of threats from a weak global economy and excessively low inflation. But it suggested the possibility of a rate hike in December.

A statement the Fed issued Wednesday said it would seek to determine “whether it will be appropriate to raise the target range at its next meeting” by monitoring the progress on employment and inflation. It marked the first time in seven years of record-low rates that the central bank has raised the possibility that it could raise its benchmark rate at its next meeting.

In a further signal that a rate hike could occur at their last meeting of the year, policymakers sounded less gloomy about global economic pressures. They removed a sentence from their September statement that had warned about global pressures after news of a sharper-than-expected slowdown in China.

“They implied they’d do it this year,” Patrick O’Keefe, director of economic research at the accounting firm CohnReznick, said after the Fed issued its statement after ending its latest policy meeting. “The economy is not cooperating. It has to be immensely frustrating …The global economy is still decelerating and we’re seeing a softening of growth domestically.”

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects a December rate hike if the jobs reports for October and November show the labor market is getting stronger.

“Some combination of payrolls, unemployment and wages signaling continued improvement will be enough,” he wrote in a note to clients.

Still, the Fed indicated that the economy is expanding only modestly. And in a nod to recent weaker data, policymakers said in their statement that the pace of job gains had slowed – an indication that they may be concerned about the pace of hiring.

While many Fed officials have signaled a desire to raise rates before year’s end, tepid economic reports in recent weeks had led some analysts to predict no hike until 2016.

The Fed’s statement Wednesday was approved on a 9-1 vote, with Jeffrey Lacker, president of the Fed’s Richmond regional bank, dissenting. As he had in September, Lacker favored a quarter-point rate hike.

The Fed has kept the target for its benchmark funds rate at a record low in a range of zero to 0.25 percent since December 2008.

Yellen after the September meeting noted that 13 of 17 Fed officials expected the first rate hike to occur this year. But some economic reports since then have been subpar, including a slowdown in job growth for September.