Fed keeps interest rates unchanged, review likely in December

The US Federal Reserve on Wednesday said its board of governors decided to keep policy interest rates unchanged amidst solid US economic growth and a strengthening labour market and postpone a rate hike till the next policy meeting in December.

The Federal Open Markets Committee (FOMC) kept the interest rate on federal funds unchanged at 1-1.25 per cent, even as it played down the impact of recent hurricanes, signalling a likely rate hike in December when the committee meets next.

The Fed said it was also proceeding with the reduction of its $4.2 trillion in holdings of Treasury bonds and mortgage-backed securities.

''In view of realised and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 per cent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 per cent inflation,'' the FOMC stated.

''The labour market has continued to strengthen and ... economic activity has been rising at a solid rate despite hurricane-related disruptions,'' the Fed's rate-setting committee said in a statement after its unanimous policy decision.

FOMC noted that the labour market has continued to strengthen and that economic activity has been rising at a solid rate despite hurricane-related disruptions. Although the hurricanes caused a drop in payroll employment in September, the unemployment rate declined further, it noted.

Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. A rise in gasoline prices in the aftermath of the hurricanes helped boost overall inflation in September, although inflation for items other than food and energy remained soft.

On a 12-month basis, both inflation measures have declined this year and are running below 2 per cent, Fed said.

US Treasury and interest rate futures were little changed after the release of the Fed statement, while federal fund futures put the odds of a December rate hike at about 98 per cent, according to CME Group's FedWatch programme.

The US dollar pared gains against a basket of currencies and the S&P 500 index rose slightly.

Market is now focused on who will be in charge of monetary policy at the end of Fed chair Janet Yellen's first term in February 2018.

President Donald Trump is set to announce his nomination in the afternoon today and many expect Fed Governor Jerome Powell, who has supported Yellen's gradual approach to raising rates, as a likely candidate.