The Fed projects the inflation rate to touch 2% in the medium term, which seems to be quite challenging, and offers a unique scenario. They also hinted that standard overnight interest rate was left within a 0.25 to 0.50 percent range because inflation data hasn’t shown any significant change.
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According to the FOMC, near-term risks to the economic outlook have diminished and much will depend on the evolving global economic and financial developments.
Increase in labor utilization as evident in the June jobs data was also taken note of. The September U.S. Dollar Index also lost ground suggesting a dovish interpretation by Forex traders.
“We still expect the Fed to raise rates at least once and probably twice this year… the odds of a September rate hike are far higher than the 30 percent probability that is now priced into futures markets”, he added. The FOMC said in its statement that “job gains were strong in June following weak growth in May”, referring to nonfarm payrolls that rose from 11,000 to 287,000 over the one-month period.
Dilip Patel (left) and Glenn Carell work at a post on the floor of the New York Stock Exchange, minutes after the announcement that interest rates will stay where they are. They indicated less worry about possible shocks that could push the economy off course, hence, odds of a September rate hike are well on cards. Before the crisis, the Fed estimated that holding its benchmark rate around 5 percent was a neutral policy, neither providing stimulus nor hitting the brakes. Fed officials next meet September 20-21, and will publish new forecasts and rate projections at the conclusion of that gathering.
A statement following the two-day meeting of the FOMC said that the labor market perked up in June after a disappointing May, and household spending is increasing.
“Interest rate policy normalisation this year may be hard for the Fed to accomplish, particularly should jobs growth continue on its slowing trend, inflation expectations and realized inflation remain fairly moderate, and both domestic and global political risks continue to unsettle financial markets”, he said. However, the Fed’s statement kept hopes alive for a rate cut in the future. Further, Yellen is scheduled to speak at the Kansas City Fed’s Jackson Hole, Wyoming, symposium on August 26, where she is expected to provide further clarity on the next Fed move, analysts said.
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Investors are divided on whether the Fed will raise rates before the USA presidential election.
