The U.S. economy continues to improve with decreasing unemployment and improvement in the housing sector. Against the background of the Fed having made it clear again on Wednesday night that a first rate hike very much depended on the data United States dollars was able to benefit only to a small degree and above all not sustainably from the data. This means we are very likely to soon see the first bump in the Federal Funds rate in almost 10 years.
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In a typically nuanced policy statement issued after the meeting, it said: ‘On balance, a range of labour market indicators suggest that underutilisation of labour resources has diminished since early this year.’.
Also, the language on the labor market should be read as stoutly positive, also a key sign that rates are on the cusp of going higher.
While inflation remains low, the employment picture has clearly brightened.
A July 28 CNBC survey of 35 of the U.S.’s top money managers, economists, and investment strategists showed 82 percent believe the Fed will raise rates in 2015.
With no meeting in August, it will have two months of data to analyse before deciding whether to raise rates from their emergency levels in September.
If we read between the lines here, which you must do when reading a FOMC statement, you get the sense that the Fed is prepping the rate hike launch pad for a September lift-off.
The US central bank has kept rates at a near-zero level since December 2008 as part of its effort to spur the recovery from the financial crisis.
The last time the Fed raised rates was back in 2006.
Barring the latter development, I suspect the cost of capital will finally increase in seven weeks’ time.
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Send me your thoughts and let me know by leaving a comment on our website or by sending me an e-mail. Front month Brent futures managed to post moderate gains with a brief rally above $54/bbl early on, however, the global benchmark was more responsive to current global fundamentals and with Iran anticipated to add substantially to global supplies, front month futures capped gains at a modest 0.7% for the day after bolstering support at the recent low towards $52.50/bbl.
