The Fed statement’s upbeat language opened the door for a small rate hike at the committee’s next meeting, in September.
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While Fed policymakers said they continued to closely monitor inflation data and global economic and financial developments, they indicated less worry about possible shocks that could push the economy off course.
Tim Duy, Senior Director at the Oregon Economics Forum, said a rate hike at the next FOMC meeting in September could not be ruled out. But indications are loud that Fed is moving closer to a USA rate hike later this year but stopped short of signaling the timing.
State Street Global Advisors’ chief economist, Christoper Probyn, said the uncertainty created by Brexit and the “lacklustre” global outlook stayed the Federal Reserve’s hand in July.
“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.
Acknowledging recent domestic economic strength alerts markets to increasing Fed optimism, yet it also leaves the Fed room to defer a hike should inflation fail to materialise, global risks intensify or U.S. indicators slump.
Among other things, the FOMC said that “job gains were strong in June following weak growth in May”.
The FOMC statement further mentioned that besides the job market, household spending has also started to improve and that economic activity has been expanding at a moderate rate; however, business conditions remain on a soft spree, the committee noted. So, while it is likely the economy will be strong enough for the Fed to raise rates in September, it is hard, right now, to predict that. Due to small USA economy long-term growth estimates by the central bank policymakers, the rate hikes has been reduced to two.
Fed policymakers have used the conference to give major steers on central bank policy.
The new wording was viewed by some experts as a signal that the Fed could raise interest rate at its meeting on September 20-21. Relatively high US rates strengthen the dollar, hobbling USA exports and the economy. It has room to accelerate its rate increases if the economy were to heat up so much as to ignite inflation. “A string of better-than-expected economic data recently, as well as an easing in financial conditions, have also calmed nerves”.
A separate report showed that Spain’s unemployment rate ticked down to 20.00% in the second quarter from 21.00% in the previous quarter, compared to expectations for a slip to 20.40%.
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Concerns about volatility around the BOJ’s announcement have sent the price of hedging against big swings in the dollar/yen exchange rate over the next 24 hours above 50 percent for the first time since late 2008.
