The Fed noted that the USA job market has rebounded, with robust hiring in June after a deep slump in May.
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But there was a markedly improved characterization of the us economy in the statement released by the policymaking Federal Open Market Committee compared with what was said after the last meeting in June. “There was no real capitulation from any commitment to hike this year”. It also declared that near-term risks to the economic outlook have ebbed.
The won advanced to the strongest in nine months as the Fed comments led traders to trim bets US policy makers will raise interest rates this year.
But some market watchers say a BOJ move may be too close to call, and many central bank policymakers may prefer to hold off on action as they expect an anticipated fiscal stimulus package and a delay in next year’s sales tax hike to boost growth.
The main USA equity gauge has surged in the past month with global equities on speculation the Fed won’t rush to add stimulus even as the economy shows signs of picking up steam.
The US economy, however, has suffered little initial impact from the so-called “Brexit” vote. Eastern time, before drifting lower later in the afternoon.
Yields on 30-year Treasuries dropped five basis points to 2.23 percent. “United States dollar can strengthen thereby adding pressure on EM currencies”, said Dhananjay Sinha, head of research at Emkay Global Financial Services Ltd. Esther L. George, president and chief executive officer of the Federal Reserve Bank of Kansas City, was the lone dissenter.
The Fed’s comment that near-term economic risks have diminished come after a recent string of bullish economic data out of the USA labor, housing and retail sectors for the month of June. Financial markets largely shrugged off the immediate reaction to Brexit, with US indexes hitting highs in recent weeks.
“Near-term risks to the economic outlook have diminished”, Fed officials said, another hint that they are leaning toward raising short-term rates in the months ahead.
Inflation in the United States has been below the Fed’s target rate for four years now.
In commodity markets, crude oil extended losses after suffering big hits overnight on renewed concerns about oversupply.
Once the markets stabilized, the Fed signaled a likely rate increase by midyear.
In December, the Fed raised its benchmark rate from a record low near zero, where it had stood since the depths of the 2008 financial crisis. The central bank was also affected by Britain’s forthcoming vote on whether to leave the European Union, anticipation of which had rattled investors.
Now, though, the pendulum has swung back, especially after the arrival of a reassuring June jobs report. US gold futures for August delivery were up 1.1 percent at $1,341.10. That marked a mild upgrade from June, when the Fed said household spending had strengthened and economic activity appeared to have picked up. “After all, without business investment, job creation and by extension income growth and consumer spending will remain restrained”.
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According to analysts, the interest rate hike may happen in September. But unchecked, low rates also can lead to higher inflation, which so far has not happened.
