Fed Doesn't Budge

Anybody who thought the Federal Reserve might scale back its plans for future rate increases after all the recent turmoil in the stock market has to be disappointed.

The Fed on Thursday left interest rates unchanged (https://www.wsj.com/articles/fed-holds-rates-steady-signals-more- rate-increases-ahead-1541703706), and it didn't change much else. The statement it put out following its two-day meeting contained only minor tweaks from its September statement. It noted that the unemployment rate had declined since its September meeting (as opposed to "stayed low"), and that business investment has "moderated from its rapid pace earlier in the year" (rather than "grown strongly"). The two things roughly offset each other and both have been clear from the data.

One important change the Fed didn't make was to soften its expectation of "further gradual increases" in rates to " some further gradual increases," which would have echoed a recent remark (https://www.wsj.com/articles/fed-vice- chairman-strong-growth-supports-case-for-continued-rate-rises-1540484202)from Fed Vice Chairman Richard Clarida. The danger of doing that, points out Krishna Guha, vice chairman of research firm Evercore ISI, is that it might have come off as the Fed responding to an unsettled stock market. It might also have looked like the Fed was reacting to recent criticism (https://www.wsj.com/articles/trump-steps-up-attacks-on-fed-chairman-jerome-powell-1540338090)from President Trump, putting the central bank's political independence into doubt.

The Fed's statement is very different from early 2016, the last time markets were this volatile. With the economy more fragile and market declines bigger, the Fed put its rate-increase plans on pause for nearly a year. In 2016, the Fed was mostly worried about risks to the downside, but now it appears equally concerned with the risk of things running too hot.

A cooler economy, rather than a volatile stock market, is what would persuade the Fed to take a more dovish tack. Investors, and the president, may be disappointed.

Write to Justin Lahart at justin.lahart@wsj.com (mailto:justin.lahart@wsj.com)

-Justin Lahart; 415-439-6400; AskNewswires@dowjones.com

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  11-08-18 1729ET
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