Federal Reserve Holds Rates Steady, But December Hike Coming

The Federal Reserve kept its key interest rate steady on Wednesday, but left little doubt that the next hike is on tap for December.

The post-meeting statement signaled no change from the Fed's policy of continuing to gradually adjust rates higher.

"Inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilize around the Committee's 2% objective over the medium term," the statement read.

The status quo, at least according to Fed members' projections in December, called for one more rate hike this year and three in 2018. While the latter is far from clear, markets see a December hike as a virtual certainty.

President Trump said Wednesday that he will announce his nomination for Federal Reserve chief on Thursday afternoon. He praised current chief Janet Yellen, but is expected to pick Fed Gov. Jerome Powell.

Treasury yields slipped ahead of the Fed statement, possibly related to a delay in Republicans releasing tax legislation. After the statement, the 10-year Treasury yield dipped further, while major stock indexes moved higher.

Financial stocks, which can benefit from higher interest rates, held onto gains after the Fed news. Wells Fargo was up 0.1% at 56.21 after briefly crossing a buy point at 56.70.

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Despite inflation undershooting the Fed's 2% target, policymakers are still expressing confidence that inflation will eventually reach that goal in the medium term. The vote to leave rates unchanged was unanimous.

Competitive factors have contributed to low inflation in a wide array of industries, and that may be slow to change. However, the Fed expects that upward pressure on wages will eventually feed through to price pressures.

There is pretty clear evidence that wage pressures are building. Daily Treasury statements show that federal income and employment taxes withheld from worker paychecks are now growing at 6% from a year ago, according to an IBD analysis. That's the best sustained rate of growth since early 2008 . and a signal that 3% wage growth may finally have arrived.

The tax receipt data, which offer the broadest, most timely read on the health of the labor market, are consistent with what companies are saying and doing. Target ( TGT ) announced last month that it's hiking its minimum wage to $11 an hour this month as it recruits 100,000 seasonal workers. Target eventually plans to raise its minimum wage to $15.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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