Ahead of Thursday’s Q2 GDP report, Michelle Meyer at Bank of America Merrill Lynch said the US economy was facing a “moment of truth”.
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It’s a boon for borrowers but a bummer for savers: Interest rates have been left at record-low levels by Federal Reserve officials, and they wrapped up a two-day meeting with a statement that gave no firm indication on whether rates will go up at the next meeting either.
“They’re closer … than they were at the last meeting”, said John Silvia, chief economist at Wells Fargo Securities.
Ruskin called the lowered bar for labour-market improvement “dollar-friendly for sure”, but he added that he “suspect(s) that in this whippy summer market the follow-through will be restrained”. “The make-or-break issue is inflation”.
Wednesday’s statement pointed at improvements in the unemployment rate, consumer spending and housing.
The U.S. economy resumed economic growth after contracting in the first quarter, with first-time jobless claims falling to a 42-year low this month and the unemployment rate at its lowest since April 2008.
There are arguments for and against both September and December as the launch date for the Fed’s interest rate rise programme.
The policy could prove important for emerging market currencies, which risk losing value once the Fed finally does raise rates.
Business investment and exports have been soft, for instance.
During Yellen’s testimony to Congress this month, some Democrats urged her to consider delaying a rate hike because inflation remains below the Fed’s 2 percent target. The Fed has typically raised rates when it perceives a need to prevent inflation from getting out of control.
The Dow Jones industrial average rose 121.12 points, or 0.7 percent, to 17,751.39. Markets aren’t pricing in a second rate increase until June 2016, according to Royal Bank of Scotland Group Plc.
The economy’s moderate growth does not provide much ammunition for either side of the Fed’s rate-hike debate, wrote Joel L. Naroff, an economist at Naroff Economic Advisors. This may even trigger a rate hike in the near term, analysts opine.
“Given the supportive domestic economic backdrop, we expect this positive momentum in activity to be sustained in the coming months, providing the Fed with the necessary justification to raise rates this year, perhaps as early as September”, Mulraine said. I think we’ll see Lacker be the lone vote for a rate hike before the majority on the FOMC vote for it. You can see who are considered hawks and doves on the Fed with this Reuters Hawk-Dove scale. Bonds rose, pushing the benchmark 10-year Treasury note traded at a yield of 2.27 compared with the almost 2.30 percent before the Fed statement.
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The US economy gained momentum in the second quarter after a disappointing first quarter.
