What's going on?

The US Federal Reserve (the Fed), as expected, made no changes to its interest rate policy on Wednesday � but it did set investors up for an interest rate increase at its next meeting (in December).

What does this mean?

After every meeting, the Fed issues a statement outlining its thoughts on the economy and the prospect of altering its target interest rate. The statement after Wednesday�s meeting contained some seemingly minor, but important, differences from previous statements – differences that suggest an interest rate hike is coming. There was also one fewer voter than last time against the decision to do nothing � which suggests that the voter was satisfied that the Fed was telegraphing to investors appropriately its plan to raise its target interest rate in December.

Why should I care?

For the markets: A December rate hike is already somewhat priced into markets.
Investors are ascribing a 70% chance to the Fed raising interest rates in December. As almost always happens, markets are reflecting the views of investors before the actual event. That�s why the dollar has already gone up significantly in value versus other currencies, bonds have gone down, and stock prices are a little soft (how higher interest rates affect investments is explained here).


For you personally: Prices are going up.
�Core� inflation, which is the underlying rate of inflation excluding volatile things like energy and food prices, recently hit its highest level since March (which happened to be the highest level since the 2008 financial crisis). Interestingly, in March, the head of the Fed said the inflation rate would not stay that high, which was proven correct as it fell over the following six months. But now the Fed is increasing its expectations for inflation, which suggests it expects increasing inflation to stick around this time. Your wallet might start feeling a bit lighter (unless your pay increases too!).