Recent data indicate that “the labor market has strengthened and that economic activity has been expanding at a moderate rate”, the Fed said.
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It added that household spending also had been “growing strongly”, Federal Open Market Committee stated in the report, APA-Economics reports. But they changed their tone after USA added a mere 11,000 jobs in May and the Brexit vote neared.
USA stocks extended declines before later reversing course to trade largely flat in the session.
Many gold investors settled on the notion that the Federal Reserve was actually dovish-in favor of maintaining low interest rates-despite the central bank leaving an interest-rate rise on the table for September.
Since the policy-setting Federal Open Market Committee (FOMC) last met six weeks ago, economic reports have shown one example of resilience after another in the United States, following a slow first quarter. However, it noted a labor market that has “strengthened” and said other indicators were pointing to growth.
The results suggested investors had expected the Fed to produce a rosier statement than the one released on Wednesday. “A September rate increase can not be ruled out, but based on the Fed’s cautious approach during the current rate cycle, a December increase appears more likely”. If the new figures show sustained improvement, September might be when the Fed decides to resume the rate increases it began in December. Odds were unchanged after the statement, according to Justin Lederer, rates strategist at Cantor Fitzgerald.
Fed policymakers seemed poised for a small rate hike in June as economic growth picked up following a weak winter.
Housing markets were strong but net exports were not. Also in June, the statement said “job gains have diminished”, while in July, the central bank saw “payrolls and other labor market indicators point to some increase in labor utlization in recent months”. The Fed’s assessment of global risks on Wednesday indicated officials’ concerns about Brexit-related financial strains had diminished in the short-term, however they still see lingering threats from Europe in the medium- to longer-run.
Still, absent a shock to markets or a reversal in United States economic data, even dovish policymakers like Dudley have signaled that their cautious approach to normalizing monetary policy likely allows for at least one rate hike this year. It has room to accelerate its rate increases if the economy were to heat up so much as to ignite inflation. The Fed last hiked its overnight rate in December after keeping it anchored near zero for seven years. Stronger consumer spending is thought to have lifted growth, as measured by the gross domestic product, from a 1.1 percent annual rate in the January-March quarter to around 2.5 percent in the April-June quarter, with further acceleration expected later this year.
The good news: The Fed clearly sees improvements in the USA – and if it were to base its decision exclusively on the health of its own economy, Ren estimates it would likely have already been confident to move rates higher. Policymakers around the world are closely watching the fallout, though the extent of any damage will not be clear for years.
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Federal Reserve Bank of Kansas City President Esther George voted against the committee’s action on Wednesday because she preferred to raise rates immediately. Treasury yields were lower, with the 2-year yield near 0.72 percent and the 10-year yield around 1.51 percent.
