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The Journal Gazette


  • FILE - In this Friday, May 27, 2016, file photo, Federal Reserve Chair Janet Yellen speaks while being interviewed as part of a conversation at a Radcliffe Day event at Harvard University in Cambridge, Mass. On Wednesday, Sept. 21, 2016, the Federal Reserve issues a statement and updates its economic forecasts, and Chair Janet Yellen holds a news conference. The Fed is expected to leave rates alone, though a rate hike isn’t impossible. (AP Photo/Charles Krupa, File)
September 21, 2016 2:40 PM

Fed keeps key rate unchanged, but hints of coming hike

MARTIN CRUTSINGER | Associated Press

WASHINGTON -- The Federal Reserve is keeping a key interest rate unchanged but sending a strong signal that it will likely boost rates before the end of the year.

The Fed said in a statement Wednesday that the U.S. job market has continued to strengthen and economic activity has picked up.

It characterized the near-term risks to the economic outlook as "roughly balanced." It was the first time it has used that wording since last December, when it last raised rates. Most analysts have said they think the Fed will next raise rates in December.

For the first time in nearly two years, there were three dissents to the Fed's statement Wednesday.

Until recently, many Fed-watchers had thought a rate hike was likely this week. They believed the Fed, starting with a late-August speech by Chair Janet Yellen in Jackson Hole, Wyoming, was preparing investors for an imminent increase.

Yellen suggested then that given the job market's solid gains and the Fed's outlook for the economy and inflation, "the case for an increase in the federal funds rate has strengthened in recent months."

Other Fed officials, including Vice Chairman Stanley Fischer, made similar observations, seemingly part of a collective signal that a September rate hike was probable if not definite.

Sentiment shifted, though, after Lael Brainard, a Fed board member and Yellen ally, laid out the case for delaying a resumption of rate increases for now.

Brainard's comments, coupled with a string of weaker-than-expected economic data, led watchers to conclude there will likely be no rate increase this week.

Still, many analysts had expected the statement the Fed released Wednesday to signal that modestly higher lending costs were coming soon — in part to satisfy the growing number of Fed officials who have pushed for a resumption of rate increases.

Some economists had pointed to the minutes of the Fed's July meeting and comments from officials since then to suggest the central bank's "hawks" — those who think it should be acting faster to raise rates — are gathering adherents from the dove camp. Doves tend to be wary of raising rates quickly for fear for undermining growth.

Others said that members of the dove camp, who include Yellen, weren't yet convinced, especially after the recent string of tepid readings on the economy.

Job growth slowed in August. A manufacturing gauge slid back into recession territory. An index that tracks the services economy, where most Americans work, fell to its lowest level since 2010. U.S. shoppers retreated in August to depress retail sales after four straight monthly gains.

These were signs, too, that the economy might be struggling to accelerate after three straight quarters of anemic growth.

And perhaps most critical for some Fed officials, inflation has yet to make significant progress in rising toward the central bank's 2 percent target range.