Skip to main content

The U.S. Federal Reserve held interest rates steady on Thursday but remained on track to keep gradually tightening borrowing costs, as it pointed to a healthy economy that was marred only by a dip in the growth of business investment.

Business investment can be a key to rising productivity and future growth, and the fact that it had “moderated from its rapid pace,” as the Fed said, was the only cautionary note in a policy statement that touted strong job gains and household spending, and a “strong rate” of overall economic activity.

“The labour market has continued to strengthen and … economic activity has been rising at a strong rate,” the U.S. central bank said, leaving intact its plans to continue raising rates at a gradual pace. The Fed has hiked rates three times this year and is widely expected to do so again in December.

Story continues below advertisement

The statement overall reflected little change in the Fed’s outlook for the economy since its last policy meeting in September. Inflation remained near its 2 per cent target, unemployment fell, and risks to the economic outlook were still felt to be “roughly balanced.”

Policy-makers, however, took particular note of the moderation in business investment, an important component of GDP that can spin off jobs as companies build new facilities, and raise productivity as they upgrade equipment and processes.

Boosting investment was one of the main objectives behind the Trump administration’s move to reduce the corporate tax rate as part of its restructuring of the tax code at the end of 2017.

After adding four-tenths of a percentage point to economic growth in the first six months of the year, lagging investment in “nonresidential structures” trimmed a quarter of a percentage point in the annualized growth rate for the third quarter.

Financial markets, which had expected the Fed to hold its benchmark overnight lending rate steady in the current range of 2.00 per cent to 2.25 per cent this week, ticked lower after the statement was released.

After a stock market rout in October and signs that both housing and business investment may be waning, some analysts expected the Fed to possibly signal doubt about its next rate increase.

Yet December still seems firmly in play.

Story continues below advertisement

“The only surprise here is that they weren’t more hawkish,” said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York. “There were a couple words that were more muted – that business investment had ‘moderated’ from its earlier pace. But apart from that they have not signalled any warning signs at all.”

U.S. stocks, which had rallied broadly on Wednesday after the results of the U.S. congressional elections, turned lower as the Fed’s statement offered no indication the central bank might slow the pace of its rate increases.

The dollar also weakened against the euro and yen and U.S. Treasury yields held near the day’s high. The 10-year Treasury note yield, a benchmark for both consumer and business borrowing costs, was 3.23 per cent, around the highest since 2011.

FADING STIMULUS

Data released in late October showed the U.S. economy grew at a 3.5 per cent annual rate in the third quarter, well above the roughly 2 per cent annual growth pace the Fed and many economists regard as the underlying trend.

But Fed policy-makers also have begun debating whether the economy has reached a plateau as the stimulus from the Trump administration’s $1.5-trillion tax cut package and increased federal spending begin to fade.

The Fed’s policy statement did not explicitly take stock of the recent volatility in U.S. equity markets that led to the selloff in October, or address the possibility of a slowdown in global growth next year.

Story continues below advertisement

There were no updated economic forecasts released on Thursday and Fed Chairman Jerome Powell was not scheduled to hold a news conference.

The Fed’s policy decision was unanimous.

Report an error
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter