The U.S. central bank, which is expected to lift rates in September, said the economy had overcome a slowdown in the first quarter and was “expanding moderately”.
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“The committee now anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for a few time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run”, the announcement continued.
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.’.
The real news out of the FOMC announcement yesterday is that the Fed was more “hawkish” than many realize. The Fed has had short-term rates pegged close to 0% since late 2008. Strong economic growth could make the case for a September rate hike. “I didn’t see anything that changed our minds on that”. But before taking any action it said it wanted to see “some further improvement in the labour market”.
Deutsche BankAt Bank of America Merrill Lynch, Michael Hanson wrote that, like Deutsche Bank and other firms, he doesn’t expect any wholesale changes to the Fed statement, looking instead for “a cautiously optimistic if noncommittal message”. Once the market got wind of that change a few of the early dovish interpretation was taken out. Enough improvements have been made in the labor market that the Fed only needs a little more confirming evidence to say it’s time.
Gross domestic product rose at a 2.3% annual rate from April to June, according the Commerce Department. OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE INC., WASHINGTON: “There’s something for the dollar bears that the Fed didn’t clearly hint at a September hike”. Without pundits, or economists, or markets (via fed funds futures contract implied probabilities) pricing in a rate hike by any means, the FOMC’s July policy meeting really is about the FOMC’s September policy meeting. “The Fed is doing a good job getting people ready for a rate hike before year’s end, making it likely to be a low-impact event”.
“The Committee was very clear that they’ve recognized the under performance of the economy, talking about household spending still being very moderate and inflation still well below target”, she said.
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Continues to see the risks to the outlook for economic activity and the labor market as almost balanced.
