Economic Flash

Fed Makes Note of Weaker Business Investment, December Rate Hike Still Likely

by Craig Dismuke, Dudley Carter

Fed Makes Note of Weaker Business Investment, December Rate Hike Still Likely


The FOMC held its overnight target rate range at 2.00-2.25% at their November meeting, and made one noteworthy change to their Official Statement.  The only notable change, the Committee’s assessment of business fixed investment was downgraded from “grow[ing] strongly” to “moderated from its rapid pace earlier in the year.”  Recent data, including the Durable Goods Orders report and 3Q GDP report, have shown a weaker rate of business investment.  Qualitative reports have blamed some of the pullback on concerns over tariffs.  However, with such a strong consumer as a tailwind and still-favorable tax treatment, business investment should remain strong enough to keep economic growth stable.  The weakness, at least what has been reported thus far, is unlikely to be sufficient to dissuade the Fed from hiking in December.  Additionally, Fed officials will only have the benefit of seeing the October durable goods orders data between now and their December 19 meeting.


With inflation continuing to run near-target and the labor market remaining strong, a December rate hike will continue to be the basecase expectation.


Voting for the first time as the San Francisco Bank President today was Mary Daly.  There were no changes to the supplemental Implementation Note.


November 8, 2018

FOMC Official Statement


Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.


Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.


In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 2 to 2-1/4 percent.


In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.


Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Richard H. Clarida; Mary C. Daly; Loretta J. Mester; and Randal K. Quarles.


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