In a statement released Wednesday, Fed officials said, “near-term risks to the economic outlook have diminished”.
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The Federal Reserve’s optimistic tone following its latest policy meeting has the market speculating whether it will raise rates in September or wait until after the U.S. election in December.
Consumers have benefitted from the Federal Reserve’s decision to refrain from raising interest rates at its July meeting.
Many Wall Street banks are pricing in expectations for an interest rate rise from the Federal Reserve, which would be a shot in the arm for their businesses.
Expectations of further stimulus in Japan have dominated currency trading in recent weeks and overshadowed the US central bank’s policy-setting statement on Wednesday, when the Fed indicated it was in no rush to raise interest rates.
The June Brexit and unpredictable financial markets are among the factors that have caused the delay in another rate hike by the Fed.
Fed also put a full stop to all speculations over a rate cut.
Putting behind the surprise downturn in job creation in May that had raised worries about the economy, the Federal Open Market Committee (FOMC), which sets the monetary policy, said employment and economic growth had grown moderately since its mid-June meeting.
“When you throw some disappointing earnings reports and some nervousness about interest rates together, you see the market catch a bit of a down draft like today”, says Terry Morris of Wyomissing, PA-based National Penn Investors Trust Co.
“It’s always a live meeting and a September hike is still on the table, but our forecast is for a December rate hike”.
The Fed has held steady on rates since December, when it raised them for the first time in almost a decade and signalled another four rate increases were in the offing for 2016.
The reason could be that prospects of a September hike have not been digested by the foreign exchange markets as the Fed was evasive on the actual timing of a rate hike.
Germany’s unemployment declined more than expected in July, reports said citing data from the Federal Labor Agency on Thursday. Esther George, the president of the Fed’s Kansas City regional bank, dissented for the third time this year, arguing for an immediate quarter-point rate hike.
The Federal Open Market Committee was nearly unanimous with only Esther L. George voting against preferring to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
The next real clue on the Fed’s interest rate direction could come on August 26 when Yellen speaks in Jackson Hole, Wyoming. USA light crude declined 65 cents at $41.27.
In the immediate timeframe though, the Asian markets including India, would be looking towards the Bank of Japan which began its two-day policy meeting, and will announce its decision on Friday.
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“We are quite hawkish on the Fed policy for this year and next”, she said.
