Newsroom

November 27, 2017

Fed on track for December rate hike

Despite worries over persistently low inflation levels by members of the Federal Open Market Committee (FOMC), continued strengthening in the labor market and increased economic activity still point to a December quarter-point rate hike.

"Clearly the FOMC has been befuddled by stubbornly low inflation. This has led to some divisions within the committee centered on the confidence that inflation will return to the committee's 2 percent target," said NAFCU Chief Economist and Vice President of Research Curt Long. "Where in the past officials have consistently reiterated their opinion that low inflation readings are due to temporary, transitory factors, doubt appears to be creeping in.

"This likely will not put the Fed off its plan to raise rates in December, but it could result in a more gradual pace to rate tightening in 2018," Long added.

Based on minutes from the committee's latest meeting, Oct. 31-Nov. 1, some committee members thought that a decline in longer-term inflation expectations could make it harder for inflation levels to return to 2 percent – the Fed's target rate – over the medium term. Other panel members shared concerns that waiting too long to normalize monetary policy "could result in a substantial overshoot of the maximum sustainable level of employment that would likely be costly to reverse or could lead to increased risks to financial stability."

At the close of its last meeting, the FOMC made no change in interest rates.

The FOMC last raised the federal funds target rate to a range of 1 to 1.25 percent in June. The FOMC will meet again Dec. 12-13.