Fed Leaves Rates Unchanged, Statement Signals December Hike

U.S. stocks edged higher on Wednesday, after the Federal Reserve announced it would leave benchmark interest rates unchanged. FOMC officials acknowledged the improvements in the economy and job market, leading analysts and investors to conceive a rate hike this year as a more likely event.

"The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives," a statement read.

Several sources have informed that the FOMC is increasingly split. Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren even dissented on the decision to stay put.

Related Link: LIVE: FOMC Press Conference

"I can only surmise there's a division between those who think that we are in this secular stagnation world — slow growth for a longer time — vs. those who think it's a cyclical issue that's taking a very long time to play out,” said Kathy Jones, chief fixed income strategist at Charles Schwab.

Looking Forward

The Fed also trimmed its median rate hike guidance for this year, from two increases to just one. Officials are now projecting a move to a 0.65 percent rate this year, up from a current level of 0.4 percent. The occurrence is expected to come in December.

Mohamed El-Erian, Chief Economic Adviser at Allianz said that "while the Federal Reserve held rates unchanged, the highly unusual 7-3 vote points to the depth of its policy dilemma and makes a December hike more likely."

Jed Kolko, Chief Economist at Indeed, added, "The Federal Reserve surprised almost no one by leaving rates unchanged… But their September economic projections were a small step more pessimistic, both for short-term unemployment and for long-term GDP growth… Still, a rate hike in December looks likely, with most officials expecting higher rates by year-end, even though rates should rise more slowly in 2017 and 2018 than officials had projected earlier this year."