“Any upgrade of their view on economic activity also translates into their conviction of whether inflation will rise to 2% over time,” said Michael Gapen, chief U.S. economist at Barclays. “They're reaffirming the view that a December hike is in their baseline, and it's in ours as well.”

Pricing in federal funds futures contracts prior to the release implied an 85% probability of a quarter-point move next month, and remained at about that level after the statement.

Chairwoman Janet Yellen is scheduled to hold her next press briefing after the meeting scheduled for Dec. 12-13. All four Fed rate hikes since late 2015 have come at gatherings that were accompanied by a press conference, which occur at alternating meetings.

Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., said he also expected a December hike.

“There were only a few minor changes to keep it up to date with the latest economic numbers,” he said. “They did note that core inflation remains soft, but I think they had to change it—that was kind of marking to market.”

Bigger Drama

Policy makers wrapped up their meeting as the larger drama surrounding the Fed's future leadership approached its climax. Just before the FOMC statement was released, Trump said he'll announce his pick Thursday afternoon, adding that people will be “extremely impressed with this person.”

The president is leaning toward picking Fed Governor Jerome Powell, according to three people familiar with the matter, though he has also been considering other candidates including Yellen, whom he called “ excellent.”

Powell, a Republican and former Treasury official, has supported Yellen's policy of gradual rate increases while calling for a modest rollback of post-crisis financial regulation. In more than 40 FOMC votes since becoming a governor in 2012, including this meeting, he has never dissented.

Wednesday's FOMC decision leaves the benchmark federal funds rate—which covers overnight loans between banks and helps set the cost of money in the broader economy—in a target range of 1% to 1.25%.

A slowdown in inflation this year has renewed worries that price gains are too weak amid a tightening U.S. labor market. Unemployment dropped to 4.2% in September, its lowest level since 2001, even as the number of workers on payrolls fell for the first time in seven years thanks to the effects of hurricanes Harvey and Irma.

The Fed's preferred measure of prices rose 1.3% on a yearly basis that same month, after stripping out food and energy components, and has been under its 2% goal for most of the last five years.

“Gasoline prices rose in the aftermath of the hurricanes, boosting overall inflation in September; however, inflation for items other than food and energy remained soft,” the FOMC said.

Puzzled by the failure of inflation to advance as forecast, some Fed officials have signaled they might favor holding off on another 2017 rate hike to wait for evidence of faster price rises. Most policy makers, however, have stuck to quarterly projections updated in September that a third move this year is appropriate.

There's little sign that the storms have thrown the national economy off track. The statement noted that “household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters.”

Storm Impact

Gross domestic product grew at a 3% annualized pace in the third quarter, near the previous period's rate, and the Atlanta Fed's tracking estimate Wednesday was at 4.5% expansion for the fourth quarter.

“Hurricane-related disruptions and rebuilding will continue to affect economic activity, employment and inflation in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term,” the FOMC said.

The statement noted that the Fed is “proceeding” with the trimming of its $4.5 trillion balance sheet that began in October. Reducing the balance sheet tightens monetary policy by removing demand from the bond market.

The meeting marked the first for newly appointed Governor Randal Quarles, who was nominated by Trump in July and confirmed by the Senate in October. He also serves as vice chairman for supervision, the Fed's top cop in banking regulation.

From: Bloomberg News

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