2nd LD Writethru: U.S. Fed leaves rates unchanged, setting stage for rate hike in December

The U.S. Federal Reserve on Wednesday left interest rates unchanged amid uncertainty about market reactions to the outcome of the U.S. presidential election, but signaled that the central bank could raise rates again as soon as December.

"The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives," the Fed's policy-making committee said in a statement released after its two-day meeting.

In December last year, the Fed raised its target range for the federal funds rate by 25 basis points to 0.25-0.5 percent, the first rate hike in nearly a decade.

However, a slowdown in global economy since the start of this year and other global financial risks have made Fed policymakers cautious and hold off on any further rate hikes.

Market participants had widely expected that the Fed would keep interest rates unchanged at its November policy meeting, just days before the U.S. election on Nov. 8.

A majority of analysts said that's because the Fed didn't want to influence the outcome of the election either way, rather than to help either candidate, according to the CNBC Fed Survey released on Tuesday. Other analysts said that's because markets were unprepared for an interest rate hike.

But the Fed on Wednesday signaled that the central bank could raise rates again as soon as December because officials saw a pick-up in the U.S. economy and inflation.

The Fed said the U.S. labor market "has continued to strengthen" and growth of economic activity "has picked up" from the modest pace seen in the first half of this year.

The U.S. economy grew at an annual rate of 2.9 percent in the third quarter of the year, beating market expectation of 2.6 percent and higher than 1.4 percent in the previous quarter, the Commerce Department said last week.

The Fed also dropped the language that expected inflation would "remain low in the near term" , saying that inflation "has increased somewhat since earlier this year" and market-based measures of inflation compensation "have moved up" .

It suggests Fed officials are becoming more confident that inflation is moving toward its target of 2 percent. The so-called core personal consumption expenditures price index, the Fed's favored inflation gauge, had increased 1.7 percent over the past 12 months in September, according to the Commerce Department.

Most Fed officials have indicated that they would back another rate hike before the end of the year if the U.S. economy remains on track.

"If the economy stays on its current trajectory...we' ll see an interest rate hike later this year," New York Federal Reserve Bank of President William Dudley said last month, adding that a quarter-point hike this year "is not really that big a deal" .

The Fed will hold its next policy meeting, also the final of the year, on Dec. 13-14. About 81 percent of 59 economists surveyed by the Wall Street Journal last month expected the Fed would wait until December to raise rates. Endit