Fed leaders decided not to increase rates on Wednesday after uncertainty following the United Kingdom vote to leave the European Union, also known as Brexit, and a shockingly weak May jobs report. 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.
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(Adds trader bets on rate rises, analyst comments, Yellen speech at Jackson Hole) * Fed says near-term risks to economic outlook diminished * Target interest rate still 0.25 percent to 0.50 percent * Economy growing moderately, job gains strong -Fed By Lindsay Dunsmuir and Howard Schneider WASHINGTON, July 27 (Reuters) – The Federal Reserve left interest rates unchanged on Wednesday but said near-term risks to the USA economic outlook had diminished, opening the door to a resumption of monetary policy tightening this year. Kansas City Fed President Esther George was the only policymaker to dissent at this week’s meeting. While Chair Janet Yellen has repeatedly stated that the Fed is likely to raise interest rates gradually, market volatility and the unexpected dip in job gains have delayed such plans.
“The Fed is saying that near-term risks have diminished, so that certainly puts September back in play”, said Brian Bethune, an economics professor at Tufts University.
As recently as May, Fed officials said a rate increase in June or July would be appropriate after a slew of good economic news.
The S&P 500 index showed 17 new 52-week highs and no new lows, while the Nasdaq recorded 52 new highs and 12 new lows.
Benchmark U.S. crude fell $1, or roughly 2.3 percent, to close at $41.92 a barrel on the New York Mercantile Exchange, continuing its month-long decline. And the Fed is signaling that things are looking better.
July 28 Wall Street was set to open flat on Thursday after the Federal Reserve made a decision to keep interest rates unchanged, but left the door open for a possible increase in the coming months. America added lots of jobs in June, wiping out all the losses from May. The central bank was also affected by Britain’s forthcoming vote on whether to leave the European Union, anticipation of which had rattled investors. The Standard & Poor’s 500 stock index had plunged 5.3 percent in the two trading days after Britain’s vote. It has since regained all those losses – and set new highs.
The economy is also picking up after the year’s anemic start. In the spring, consumers boosted spending at the fastest pace in a decade. Economists also foresee a lift from business investment, reflecting a rebound from cutbacks in the energy sector.
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Traders have priced in an 18 percent chance of a rate hike in September and a near 40 percent chance in December.
