Federal Reserve to ‘Stand Pat’ on Interest Rates as Weak Inflation Is Here to Stay

Wall Street is buzzing over Thursday’s Federal Reserve statement. But don’t expect the data dependent central bank to pull the trigger and raise interest rates. ‘I think the Fed is likely to stand pat and [not announce a rate hike on Thursday],’ said Ian Winer, head of equity trading at Wedbush Securities, based in Los Angeles. ‘The Fed’s two goal posts have been employment and inflation. With employment, you could argue [the data is strong enough to raise rates], but there’s been absolutely no inflation and if anything, we might be caught in a deflationary environment.’ While not the Fed’s preferred inflation gauge, the consumer price index for August rose just 0.1 percent in August on a core basis, according to a Wednesday report from the Bureau of Labor Statistics, missing expectations of 0.2 percent. The Fed tends to chalk up weak inflation to transitory factors, like low oil prices, but Winer thinks weak inflation is here to stay. ‘The reason that there’s deflation is because there hasn’t been wage inflation.’ Winer said. ‘No wage inflation stems from technology, which has structurally shifted the economy. Businesses have found a way to automate a lot of their process so their operating margins are as high as possible.’ Higher interest rates could weaken inflation even further. TheStreet’s Scott Gamm reports from New York.