Federal Reserve Keeps Rates Steady; Lines up December Hike

The Fed kept rates unchanged on Thursday.

Investing.com - The Federal Reserve left interest rates on hold Thursday, but delivered an upbeat assessment of the economy and labor market, reaffirming expectations for a December rate hike.

The Federal Open Market Committee kept the overnight funds rate unchanged at 2.00% to 2.25% at the conclusion of its two-day policy meeting.

The Fed raised rates by a quarter point for the third time this year in September and indicated one more rate hike for December.

The Fed said that "the labor market has continued to strengthen," with economic activity rising at a "strong" rate, reinforcing investor expectations for a rate hike at the December meeting.

"Job gains have been strong, on average, in recent months, and the unemployment rate has declined," the Fed said. "Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year."

The mention of moderating business fixed investment was one of the small changes from the Fed's previous statement.

Data last week showed that the U.S. economy produced more jobs than expected last month and wage growth remained intact. The unemployment rate held steady at a 48-year low.

Some market participants had been keen to get a sense of whether the October stock market rout would feature in the statement and possibly give the Fed reason to pause. But language in the statement was largely as expected, paving the way for the dollar to extend gains on improved expectations for a December hike.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, rose by 0.62% to 96.40.

Stock market reaction was muted. The S&P sold off quickly and rebounded just as quickly to settle in the same area it was before the statement came out.

Nearly 80% of traders expect the Federal Reserve to hike rates in December, above the 72% odds a day earlier, according to investing.com's Fed rate monitor tool.

Federal Reserve Chairman Jerome Powell will not follow up the monetary policy statement with a press conference, but that will change from the Dec. 19 meeting, with a press conference then expected after every Fed meeting.