Resilient economy keeps interest rates stable


With two more opportunities to announce a move before the end of the year, trends are pointing toward the Federal Reserve using at least one of them to modify interest rates after passing on the chance this week.

The Federal Open Market Committee (FOMC) kept the federal funds rate at 1 percent to 1.25 percent, according to the meeting minutes released by policymakers. When the FOMC convenes again either at the end of October or on Dec. 12, an uptick is expected.

“In determining the timing and size of future adjustments to the target range for the federal funds rate, the committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2-percent inflation,” the meeting minutes said. “This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

“The committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal,” the minutes continued. “The committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

Ahead of when the Federal Reserves discussed storm ramifications, Comerica Bank chief economist Robert Dye offered an upbeat assessment of  the U.S. economy that could be beneficial for dealerships and finance companies for the remainder of the year.

“We are seeing the disruptions caused by a very active hurricane season in some of the economic data for August and September,” Dye said. “We expect to see more evidence of storm effects in the data for October, and perhaps in the data for November as well.

“Despite the local and regional economic disruptions, the catastrophic damage and the loss of life from the recent hurricanes, the U.S. economy remains in good shape and looks set to end the year with moderate positive momentum. This speaks volumes about the resiliency of the U.S. economy,” he went on to say.

The Fed also spent considerable time discussing the ramifications of Hurricanes Harvey, Irma and Maria, and the minutes broached the auto industry, as well.

“Sales of autos and light trucks had softened over the summer, leading producers to slow production to address a buildup of inventories, but a couple of participants noted that automakers expected to see a temporary increase in demand as households and businesses replaced vehicles damaged during the storms,” the minutes said.

“Participants acknowledged that Hurricanes Harvey, Irma and Maria would affect economic activity in the near term,” the minutes continued. “They expected growth of real GDP in the third quarter to be held down by the severe disruptions caused by the storms but to rebound beginning in the fourth quarter as rebuilding got underway and economic activity in the affected areas resumed.

“Similarly, employment would be temporarily depressed by the hurricanes, but, abstracting from those effects, employment gains were anticipated to remain solid, and the unemployment rate was expected to decline a bit further by year-end,” the meeting recap went on to mention.