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Midterm Elections Are Unlikely to Change Fed’s Trajectory

Midterm Elections Are Unlikely to Change Fed’s Trajectory
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The Fed is not expected to raise rates at the conclusion of its two-day policy meeting on Thursday as it heads toward another anticipated rate increase in December.CreditCreditChris Wattie/Reuters

WASHINGTON — The Federal Reserve’s Open Market Committee, which sets monetary policy, will issue a policy statement at 2 p.m. on Thursday after a two-day meeting.

■ Investors expect the Fed to leave its benchmark interest rate unchanged, in a range of 2 percent to 2.25 percent.

■ The Fed’s upbeat economic outlook is also likely to remain substantially unchanged.

■ The Fed is expected to raise its benchmark rate at its next meeting, in December.

The seismic shift in the political landscape on Tuesday, as Democrats regained control of the House, is unlikely to matter much for the course of monetary policy. The economy continues to grow, and the Fed has made clear that it plans to keep raising rates, slowly but steadily, well into next year.

The next rate increase, however, is not expected until the Fed’s final meeting of the year, in December.

Thursday’s meeting is largely expected to be a place holder, a chance for Fed officials to discuss the latest economic data. Bank of America’s economists titled their preview of the meeting this week “See you in December.”

For now, the data are good. The economy added 250,000 jobs in October, and the unemployment rate fell to 3.7 percent. Inflation remains close to the 2 percent annual pace the Fed regards as optimal. On the list of concerns is the fact that housing and corporate investment have weakened. But there is little reason to believe the Fed’s economic outlook has changed significantly since its last statement, in September.

The Fed is currently raising its benchmark rate by a quarter of a percentage point every quarter. At that pace, the rate will reach about 3 percent by the middle of next year. That is roughly the level the Fed regards as neutral, meaning it would neither stimulate nor discourage economic activity.

Some Fed officials are already pressing for the Fed to raise the rate into restrictive territory, arguing that inflation is likely to rise if the central bank does not begin to step on the brakes. A smaller number of officials, however, argue the Fed is moving too quickly. Wage growth is just beginning to increase, raising concerns the Fed will slow the economy as workers are starting to reap real benefits.

Jerome H. Powell, the Fed’s chairman, has said that there is no need to make a judgment until next year.

Mr. Powell has described the Fed’s task as a balancing act. On the one hand, he wants to raise rates to keep inflation in check. On the other hand, he is not trying to slow economic growth — at least not yet.

Against this balancing act, President Trump has repeatedly attacked the Federal Reserve for raising interest rates too quickly, describing the central bank as “crazy,” “loco,” “going wild” and “out of control.”

Mr. Trump’s stated concern is that higher rates will slow economic growth. He also has expressed concern that higher rates will increase the federal government’s borrowing costs.

“Every time we do something great, he raises the interest rates,” Mr. Trump complained to The Wall Street Journal, adding that his handpicked chairman, Mr. Powell, “almost looks like he’s happy” to be raising rates.

So far, there is no sign that Mr. Trump’s complaints will alter the course of policy. Members of Congress, including some Republicans, have defended the Fed’s independence. And Fed officials have insisted they plan to make policy without regard to the president’s views. “Political pressure will be in no way a consideration in monetary policy decisions,” Richard Clarida, the Fed’s newly confirmed vice chairman, said last month.

This meeting is a milestone of sorts. It is the last time the Fed plans to conduct a policy meeting without holding a news conference afterward. Mr. Powell, a lawyer with a more straightforward speaking style than the economists who have typically run the Fed, plans to take questions from the news media after each of the eight meetings of the Federal Open Market Committee in 2019.

The news conferences, begun under former Fed Chairman Ben S. Bernanke in 2011, have amplified the role of the Fed’s chairman as an official spokesman, reducing public focus on remarks by other officials. But the Fed quickly fell into a pattern of announcing policy changes at meetings with a news conference, which turned half of the scheduled policy meetings into waiting periods.

Mr. Powell’s plan increase his opportunities to speak for the Fed and communicate the rationale behind its approach — and it increases the Fed’s flexibility in determining the timing of future increases in the benchmark rate.

Follow Binyamin Appelbaum on Twitter @bcappelbaum.

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