The key thing to watch with the dots is how many officials see just one hike this year, Neil Dutta, head of economics at Renaissance Macro, said in a note. While the central bankers have hinted at future rate increases later this year, the tepid economy is not likely to spur any changes in the near term.
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And inflation remains below the Fed’s target.
Fed officials see the economy growing more slowly this year and next than in their March projection. “It is a decision that could have consequences for economic and financial conditions in global financial markets”, she said. The unemployment rate dipped from 5 percent in April to 4.7 percent in May, a level consistent with a healthy economy. The central also said some measures of inflation expectations have declined. “Growth in household spending has strengthened”. “Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened”.
The Fed lowers its short-term interest rate during an economic downturn to try to stimulate growth by making it less attractive to save. Their 2017 and 2018 forecasts are 1.9 percent and 2 percent, respectively.
At the same time, the Fed expects annual inflation to move toward its 2% annual target a bit more rapidly than it previously estimated, rising to 1.4% by the end of 2016 and 1.9% by the end of 2017.
Investors will also keep an eye on US producer price index which is expected to have risen 0.3 per cent in May after gaining 0.2 per cent the previous month. But talk of global economic risk may make a return given the British referendum on its European Union membership next week, Jefferies’ Ward McCarthy said in a note.
Some economists think a July rate increase is possible if the job market rebounds and financial markets remain calm after Britain’s vote next week on whether to leave the European Union. Yet it signaled its concern about the uncertainty of job growth and global economic developments. But should the Fed embark this summer on a path of multiple quarter-point rate increases over several months, as policymakers have indicated is its preferred route, credit costs would eventually rise more noticeably, observers say.
Chair Janet Yellen’s Federal Reserve wraps up a two-day meeting on Wednesday in Washington.
She said it was unclear whether the disappointing tally was a temporary blip or a sign of a more fundamental slowdown in job growth.
After two weak USA employment reports in a row, investors will be keen on whether Yellen thinks the soft patch is the start of something worse or a short-term blip, says Luke Tilley, chief economist at Wilmington Trust. We’ll hear from Yellen at 2:30pm and I don’t discount the possibility of her telling the markets that all it will take is a Remain vote from the United Kingdom and a rebound in jobs to put July back on the table.
Indeed, we have heard today from National Australia Bank’s Nick Parsons that the euro exchange rate complex will likely be one of the biggest losers of a Brexit scenario.
Fresh data early Wednesday will support her concerns.
Yellen, in a speech last week in Philadelphia, said economists “should never attach too much significance to any single monthly report”.
Goldman Sachs economists Zach Pandl and Jan Hatzius expect the median fed funds rate outlook for this year will be unchanged and the pace of later increases will probably come down.
The economy, meanwhile, has accelerated after notching meager growth the past two quarters.
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Fed officials will nearly certainly revisit the statement’s first sentence, because job gains have slowed – averaging 81,000 per month in April and May, after a pace of 196,000 in the first quarter – even as consumer spending accelerated and confidence has remained high. But exports and business investment remain muted because of weakness overseas, a strong dollar and the oil industry downturn.
