With the 2016 presidential election just days away, it was widely expected that Janet Yellen and the Federal Reserve were not going to announce an interest rate hike at the November 2 two-day FOMC meeting. Now we know the answer: no rate hike, with Fed Funds staying in the 0.25% to 0.50% range.

The Federal funds rate target range has remained unchanged at the 0.25% to 0.50% range since December of 2015. What is up for grabs is just how high the odds are up for a December rate hike. The bias continues to point toward a December rate hike if you trust the Federal at its word (or words).

Before panicking about rate hikes, the official view is that the case for a rate hike has continued to strengthen but that the Fed is waiting for further evidence of progress. One thing that should be noted here is that the FOMC has unofficially increased its assessment of rising prices and inflation.

After 3 dissenting votes at the prior meeting, there were just 2 dissenting votes at this meeting. The use of “Moderate” was twice and the use of “Modest” was just used once.

As far as actual data, the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. While the formal unemployment rate is little changed in recent months, job gains were described as having been solid. Inflation was shown to have “increased somewhat” since earlier this year but the FOMC feels inflation is still below the 2% target. The FOMC statement said:

• Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

Other data was shown as follows regarding certain aspects of the economy:

• Household spending has been rising moderately but business fixed investment has remained soft.
• Market-based measures of inflation compensation have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
• Near-term risks to the economic outlook appear roughly balanced.

The FOMC is calling for rates to stay low regardless of whether a hike or hikes are made. They are also promising to remain data-dependent:

The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

On quantitative easing measures, the Fed will keep its existing policy of reinvesting principal payments from its massive holdings of Treasuries, agency debt and mortgage-backed securities. The Fed further anticipates reinvesting its principal payments until normalization of the level of the federal funds rate is well under way in an effort to help maintain accommodative financial conditions.

Voting against the action were Esther George and Loretta Mester. Each voting member preferred to raise the target range for the federal funds rate to a range of 0.50% to 0.75% at this meeting.

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