US: Fed keeps interest rates at record-low, leaving door open to December hike

The Federal Reserve has announced that US interest rates will remain unchanged, leaving open the possibility to tighten monetary policy at its next meeting in December. On 28 October, the Federal Market Open Committee (FOMC) voted 9-1 to keep interest rates at current near-zero levels. For the second consecutive month, the dissenting FOMC vote came from the reserve's president Jeffrey Lacker, who called for a quarter percentage-point rate rise.

Following a two-day meeting, a Fed statement said: "In determining whether it will be appropriate to raise (interest rates) at its next meeting, the (Fed) will assess progress-both realised and expected-toward its objectives of maximum employment and 2% inflation".

While the US economy is growing at a "moderate" pace, job growth had slowed in September. Despite this, the FOMC said in a statement that "labour market indicators, on balance, show that underutilisation of labour resources has diminished since early this year." The federal funds rate has been held at 0-0.25% since December 2008.

The consensus to postpone a rate hike until 2016 has gathered momentum given economic headwinds from abroad and the creation of just 142,000 domestic jobs last month. Economists had predicted the addition of 200,000 jobs in September, according to a Bloomberg survey. On average, 205,000 jobs were created for the first eight months of 2015.

While inflation should stay low for the near term, it should "rise gradually toward 2% over the medium term as the labor market improves further and the transitory effects of declines in energy in import prices dissipate."

Fed chair Janet Yellen is not scheduled to hold a press conference on 28 October. Key economic readings are set to be released this week, including tomorrow's (29 October) third-quarter GDP estimate.