Federal Reserve keeps interest rate at record low

Associated Press

WASHINGTON

The Federal Reserve is keeping its key short-term interest rate at a record low in the face of a weak global economy, slower U.S. hiring and subpar inflation. But it signaled the possibility of a rate hike in December.

A statement the Fed issued Wednesday said it would monitor the pace of job growth and inflation to try to determine “whether it will be appropriate to raise the target range” for its benchmark rate at its next meeting.

It marked the first time in seven years of record-low rates that the central bank has raised the possibility that it could raise its key rate from near zero at its next meeting.

In a further sign that a hike could occur in December, the Fed’s policymakers sounded less gloomy about global economic pressures. They removed a sentence from their September statement that had warned of global pressures stemming from a sharper-than-expected slowdown in China.

“The Fed sent its clearest signal yet that, pending decent data, it has the December meeting in its sights for the first rate hike,” said Michael Feroli, an economist at JPMorgan Chase and a former Fed staffer.

Stocks initially gave up some of their early gains after the Fed’s announcement but then surged at the end of trading. The Dow Jones industrial average closed up nearly 200 points, or more than 1 percent.

Bond yields rose as traders anticipated higher U.S. rates. The yield on the 10-year Treasury note rose to 2.09 percent from 2.04 percent late Tuesday.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects a December rate increase if the jobs reports for October and November improve over September, when hiring slowed.

“Some combination of payrolls, unemployment and wages signaling continued improvement will be enough,” Shepherdson wrote in a note to clients.