Federal Reserve officials reinforced expectations for a Decemberinterest-rate increase by subtly upgrading their assessment of theU.S. economy, a day before President Donald Trump plans to unveilhis choice to lead the U.S. central bank.

“Economic activity has been rising at a solid rate despitehurricane-related disruptions,” the Federal Open Market Committeesaid in a statement Wednesday following a two-day meeting inWashington at which they left rates unchanged as expected.

After its meeting in September the FOMC said the economy wasexpanding “moderately.” Wednesday's statement marked the first timesince January 2015 that the committee used the word “solid” todescribe growth.

The Fed repeated its assessment that while inflation may remain“somewhat below 2% in the near term,” it's expected to stabilizearound the central bank's 2% objective “over the medium term.”

“Any upgrade of their view on economic activity also translatesinto their conviction of whether inflation will rise to 2% overtime,” said Michael Gapen, chief U.S. economist at Barclays.“They're reaffirming the view that a December hike is in theirbaseline, and it's in ours as well.”

Pricing in federal funds futures contracts prior to the releaseimplied an 85% probability of a quarter-point move next month, andremained at about that level after the statement.

Chairwoman Janet Yellen is scheduled to hold her next pressbriefing after the meeting scheduled for Dec. 12-13. All four Fedrate hikes since late 2015 have come at gatherings that wereaccompanied by a press conference, which occur at alternatingmeetings.

Michael Feroli, chief U.S. economist at JPMorgan Chase &Co., said he also expected a December hike.

“There were only a few minor changes to keep it up to date withthe latest economic numbers,” he said. “They did note thatcore inflation remains soft, but I think they had to change it—thatwas kind of marking to market.”

Bigger Drama

Policy makers wrapped up their meeting as the larger dramasurrounding the Fed's future leadership approached its climax. Justbefore the FOMC statement was released, Trump said he'll announcehis pick Thursday afternoon, adding that people will be “extremelyimpressed with this person.”

The president is leaning toward picking Fed Governor JeromePowell, according to three people familiar with the matter, thoughhe has also been considering other candidates including Yellen,whom he called “ excellent.”

Powell, a Republican and former Treasury official, has supportedYellen's policy of gradual rate increases while calling for amodest rollback of post-crisis financial regulation. In more than40 FOMC votes since becoming a governor in 2012, including thismeeting, he has never dissented.

Wednesday's FOMC decision leaves the benchmark federal fundsrate—which covers overnight loans between banks and helps set thecost of money in the broader economy—in a target range of 1% to1.25%.

A slowdown in inflation this year has renewed worries that pricegains are too weak amid a tightening U.S. labor market.Unemployment dropped to 4.2% in September, its lowest level since2001, even as the number of workers on payrolls fell for the firsttime in seven years thanks to the effects of hurricanes Harvey andIrma.

The Fed's preferred measure of prices rose 1.3% on a yearlybasis that same month, after stripping out food and energycomponents, and has been under its 2% goal for most of the lastfive years.

“Gasoline prices rose in the aftermath of the hurricanes,boosting overall inflation in September; however, inflation foritems other than food and energy remained soft,” the FOMC said.

Puzzled by the failure of inflation to advance as forecast, someFed officials have signaled they might favor holding off on another2017 rate hike to wait for evidence of faster price rises. Mostpolicy makers, however, have stuck to quarterly projections updatedin September that a third move this year is appropriate.

There's little sign that the storms have thrown the nationaleconomy off track. The statement noted that “household spending hasbeen expanding at a moderate rate, and growth in business fixedinvestment has picked up in recent quarters.”

Storm Impact

Gross domestic product grew at a 3% annualized pace in the thirdquarter, near the previous period's rate, and the Atlanta Fed'stracking estimate Wednesday was at 4.5% expansion for the fourthquarter.

“Hurricane-related disruptions and rebuilding will continue toaffect economic activity, employment and inflation in the nearterm, but past experience suggests that the storms are unlikely tomaterially alter the course of the national economy over the mediumterm,” the FOMC said.

The statement noted that the Fed is “proceeding” with thetrimming of its $4.5 trillion balance sheet that began in October.Reducing the balance sheet tightens monetary policy by removingdemand from the bond market.

The meeting marked the first for newly appointed Governor RandalQuarles, who was nominated by Trump in July and confirmed by theSenate in October. He also serves as vice chairman for supervision,the Fed's top cop in banking regulation.

From: Bloomberg News

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