In a statement after a two-day meeting, the Fed gave no clear signal about its plans in coming months and weak employment reports in July and August nearly certainly would stay the Fed’s hand again in September.
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WASHINGTON (AP) With consumers spending and employers hiring more freely, the US economy has fared better of late.
The Federal Reserve did not raise interest rates Wednesday, but left the door open a crack for a possible rate hike at coming meetings. It gained to 74.36 yen from 74.16 yen following Japan’s announcement of a stimulus package of more than 28 trillion yen (US$265 billion), bigger than expected and lifting expectations for easing by the bank of Japan on Friday. “Our economists are expecting a rate hike in December, but if the Fed starts to sound hawkish now, that could weigh on gold”, UBS analyst Joni Teves said.
“That would be flawless timing”, says Clark, adding that the Fed will have July employment data in hand by then. But some analysts who had doubted that the Fed would be ready to raise rates as soon as September said Wednesday’s statement appeared to revive that possibility. “Whether or not that happens in September depends on the economic results posted between now and then”, he says.
“As expected. there are no hints, nods or winks regarding the timing of the next rate hike”, said Ward McCarthy, chief financial economist at Jeffries & Co. But that was before the US government issued the bleak May jobs report and Britain’s vote last month to quit the European Union triggered a brief investor panic. The upcoming US presidential election could also rattle markets.
As recently as May, Fed officials said a rate increase in June or July would be appropriate after a slew of good economic news.
He said, though, while Brexit certainly caught global markets off guard late last month, it has had minimal effect so far on the USA economy.
Similarly, Loretta Mester, president of the Cleveland Fed, said in a recent interview with the Wall Street Journal, “I think the underlying fundamentals remain very solid for the U.S. economy”.
The Fed has continually cited turbulent financial market conditions as a reason for not lifting rates in 2016.
The U.S. central bank kicked off a two-day monetary meeting on Tuesday.
“The Fed is going to have to try and pull off one or two rate hikes this year without causing the dollar to strengthen significantly, which would hurt growth”, Sweet said.
The committee has only had one job report to study since its June 14-15 meeting. The Commerce Department index that the Fed watches more closely is rising at a faster pace than past year, with its next release August 2. In the spring, consumers boosted spending to what could be the fastest pace in a decade.
At the same time, the statement noted that business investment “has been soft” – a byproduct of a sluggish global economy, strong dollar and the oil industry downturn.
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All that strength might argue for September rate hike, especially if monthly job growth equals as least 200,000 between now and then. The central bank could always accelerate a rate increase if warranted. Most economists think the statement will remain mum about a timetable for the next rate hike. Odds were roughly even for a move in December, its final meeting of the year.
