FOMC: Rates Unchanged; Infl 'Soft' But On Track for Dec Hike>

--No Changes to Forward Guidance 

--Economic Activity 'Solid' Despite Hurricane-Related Disruptions 

By Jean Yung

     WASHINGTON (MNI) - The Federal Reserve on Wednesday kept its 

benchmark interest rate unchanged, as expected, and offered an upbeat 

assessment of the economy, hinting economic conditions were evolving 

broadly as they expected heading into the end of the year. 

     The Federal Open Market Committee's post-meeting policy statement 

made no adjustments to its forward guidance but signaled policymakers 

viewed the economy as staying on track for a third interest rate 

hike by year's end, as projected in September. 

     The vote to keep the fed funds rate in the 1.0% to 1.25% target 

range was unanimous. Randal Quarles, the newly appointed governor to the 

Fed Board, cast his first vote with the committee. 

     In its policy statement, the FOMC repeated that it "expects that 

economic conditions will evolve in a manner that will warrant gradual 

increases in the federal funds rate." Near-term risks to the outlook 

continued to appear "roughly balanced," it said, and, as in September, 

the committee noted "the stance of monetary policy remains 

accommodative, thereby supporting some further strengthening in labor 

market conditions and a return to 2 percent inflation." 

     The Fed's assessment of current economic conditions sounded  

optimistic. Economic activity has "been rising at a solid rate despite 

hurricane-related disruptions," the FOMC said. And although the storms 

"caused a drop in payroll employment in September, the unemployment rate 

declined further." 

     "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 Fed 

said. 

     The Fed also again acknowledged below-target inflation and repeated 

it is monitoring inflation developments closely. 

     "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. 

     "Inflation on a 12-month basis is expected to remain somewhat below 

2 percent in the near term but to stabilize around the Committee's 2 

percent objective over the medium term," the committee repeated. 

     Earlier Wednesday, the CME Group's 30-Day fed fund futures prices 

showed about 95% of the market expecting a rate hike in December.  

     The Bureau of Economic Analysis reported last week that GDP grew 

at a quicker-than-expected 3.0% in the third quarter in spite of 

severe disruptions from hurricanes in parts of the country. 

     The Labor Department is due to release its October jobs report 

Friday. Economists expect the unemployment rate to remain at a 16-year 

low of 4.2%, a tenth below the Fed's projection for the rate by the end 

of the year. 

--MNI Washington Bureau; tel: +1 202-371-2121; email: 

jean.yung@marketnews.com 

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