The US Federal Reserve kept interest rates unchanged and in a reference to its next policy meeting put a December rate hike in play.
The central bank also said the US labour market was still healing despite a slower pace of job growth.
“In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress – both realised and expected – toward its objectives of maximum employment and two per cent inflation,” the Fed said.
Investors quickly placed bets reflecting a higher chance the US central bank will raise rates in December, with futures contracts implying a 43 per cent possibility.
“The Fed is seriously considering a December rate hike,” said Harm Bandholz, an economist at UniCredit in New York.
Michael Feroli, a former Fed economist now at JPMorgan, said the Fed statement was the first since 1999 in which policymakers pointed to a possible rate increase at the next meeting.
“By specifically referring to that meeting they are basically testing the waters a bit,” said Aneta Markowska, an economist at Societe Generale in New York. She described it as a “subtle attempt” to gently nudge the market in that direction.
The Fed has been struggling to convince investors a rate hike was imminent in the wake of data this month that showed US employers slammed the brakes on hiring in August and September.
But it countered the scepticism on by saying slower hiring was still enough to get it closer to its goal of maximum employment. Central bank policymakers also pointed to “solid rates” of growth in consumer spending and business investment, while eliminating a reference from their previous statement warning a global economic slowdown could sap US economic strength.
Fed Chair Janet Yellen has been saying for much of this year that a rate hike would likely be needed in 2015 in order to sustain the economy from eventually overheating.
More recently, two Fed governors urged caution over rate hikes while questioning Yellen’s views on inflation, though such doubts appeared muted in Wednesday’s statement.
The Fed now has several important economic readings to parse, including two monthly employment reports, before it makes up its mind on whether to tighten policy at its December 15-16 meeting.
It will also get a chance to see how monetary policy easing in Europe, Japan and China plays out in financial markets. Easy money policies abroad push the dollar higher, hurting US exporters and making it harder for the Fed to get inflation back up to its two per cent target. That may explain why the Fed sought to leave the door open for a rate hike rather than paint the economy as fully ready for a monetary policy tightening.
“The Fed has dialed down its anxiety quite a bit over international developments, but it’s still best to play it safe,” said Brian Jacobsen, a portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.