No change: Fed leaves tax rates unchanged

The US Federal Reserve held interest rates steady on Thursday but remained on track to keep gradually tightening borrowing costs, as it pointed to a healthy economy that was marred only by a dip in the growth of business investment.

Business investment can be a key to rising productivity and future growth, and the fact that it had “moderated from its rapid pace,” as the Fed said, was the only cautionary note in a policy statement that touted strong job gains and household spending, and a “strong rate” of overall economic activity.

The statement overall reflected little change in the Fed’s outlook for the economy since its last policy meeting in September. Inflation remained near its 2 per cent target, unemployment fell, and risks to the economic outlook were still felt to be “roughly balanced.”

Policymakers, however, took particular note of the moderation in business investment, an important component of GDP that can spin off jobs as companies build new facilities, and raise productivity as they upgrade equipment and processes.

Boosting investment was one of the main objectives behind the Trump administration’s move to reduce the corporate tax rate as part of its restructuring of the tax code at the end of 2017.

Financial markets, which had expected the Fed to hold its benchmark overnight lending rate steady in the current range of 2.00 per cent to 2.25 per cent this week, ticked lower after the statement was released.

After a stock market rout in October and signs that both housing and business investment may be waning, some analysts expected the Fed to possibly signal doubt about its next rate increase.

US stocks, which had rallied broadly on Wednesday after the results of the US congressional elections, turned lower as the Fed’s statement offered no indication the central bank might slow the pace of its rate increases.

The dollar also weakened against the euro and yen and US Treasury yields held near the day’s high. The 10-year Treasury note yield, a benchmark for both consumer and business borrowing costs, was 3.23 per cent, around the highest since 2011.

Data released in late October showed the US economy grew at a 3.5 per cent annual rate in the third quarter, well above the roughly 2 per cent annual growth pace the Fed and many economists regard as the underlying trend

The Fed’s policy decision was unanimous.