The big obstacle for the Fed is on the inflation side.
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“There’s a movement in the right direction”. Failing a disaster in the next few job market reads, you can pencil in that September rate increase now.
The Fed has remained cautious of a too early or too late increase. “The year-over-year is still tracking at 1.3, and that’s basically what it has been”. The 10-year yield fell to 2.27 percent.
The Fed also acknowledged that economic growth since the Fed’s previous meeting in June “has been expanding moderately”. The laggard was private investment, an issue that has been a drag on the US economy throughout the global financial crisis. Reform efforts are starting to have a positive impact, but unemployment remains high and there is the risk that reforms are being reversed after the elections later this year.
Ader said that while there was an uptick in inflation, it could be passing.
In the only paragraph that contained any changes from the prior June FOMC statement, the Fed upgraded its outlook for both the economy and the labor market.
We maintain the view that Bank of England hawks will arrive hot on the heels of a September rate hike from the Fed, with Carney raising rates modestly in November.
“The Fed is going to be tightening policy for the first time in nine years”, said Phil Orlando, chief equity strategist at Federated Investors, predicting a likely September liftoff in a phone call. I think we can chalk up yesterday’s poor unemployment numbers in Germany to this.
Via Deutsche Bank, here’s a breakdown of how the firm thinks the Fed could tweak its statement later on Wednesday.
“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term”, the statement said.
However, central bankers will be watching the first reading on second-quarter gross domestic product, released Thursday morning. The Fed is expecting a rebound in economic growth after insisting first quarter’s weakness was due to transitory factors, like cold weather.
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Keep in mind that in today’s release the BEA will incorporate updated methodical changes and seasonal adjustments that should in the end revise away some of Q1 blip – but not all.
