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Strong US economy puts Fed on track for December rate rise



The Federal Reserve remained on course for further increases in short-term interest rates, with the next move widely expected to start in December, while the central bank tries to keep the economy in balance while the labor market it strengthens rapidly.

The Federal Open Market Committee maintained its 2-2.25 percent reference range on Thursday and issued a bullish verdict on the US economy, noting that unemployment declined further with the growth of economic activity and household spending. The growth of investments, the committee noted, decreased compared to the beginning of the year

. The Fed's rate decision, chaired by Jay Powell, comes as the central bank continues its gradual march towards a tightening monetary policy. Wage growth accelerated at its fastest pace in almost a decade, job gains averaged more than 200,000 a month, unemployment averaged over decades and the economy recorded two quarters of annualized growth well over 3 percent.

With an inflation close to the goal, the bank Central government raised the benchmark rate in September and policymakers have made it clear that further increases remain in perspective as they shift policy towards neutral approaches. At the same time, the central bank is constantly restricting the size of its balance sheet, which was inflated by the stimulus measures of the era of the crisis

. "Labor earnings have been on average very strong in recent months and the unemployment rate has declined," the central bank said. "Household spending continued to grow strongly, while corporate fixed investment growth eased from its rapid pace at the start of the year."

The Fed raised rates eight times in the current cycle, with a further forecast at the meeting of 18-19 December. A move was not planned for the two-day political meeting this month, which comes in the aftermath of high-risk mid-term elections that have seen the Democrats regain the House of Representatives and Republicans hold the Senate.

Although the Fed continued to have a bullish view of the US economy, it did not mention the recent market turmoil that President Trump attributed to the gradual increase in the frequency of the central bank.

The Fed statement reiterated its recent guide that further "gradual increases" are expected in the target range for rates, noting that both primary and core inflation are close to its goal of 2%. "The risks to the economic outlook appear to be approximately balanced," he added

The central bank's debate on how to prevent the overheating of the US economy is occurring in a context of repeated attacks by President Donald Trump, who has accused the Fed of being out of control and has defined institution its "greatest threat". Powell insists that the central bank is "removed from the political process" and will continue to try to do the right thing for the economy.

Despite Trump's complaints, the current Fed tightening cycle remains cautious, and officials have been reporting not necessary for aggressive moves towards the top. Richard Clarida, the newly appointed FED vice-president, said in a speech last month that there is room for the US labor market to strengthen further without fueling excessive inflation.

"With unemployment falling and wage gains so far in line with productivity and expected inflation, traditional cost-driven price-pressure indicators are not blinking right now," Clarida said.


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