While that statement said that the USA economy had gained momentum from the first half of the year, they expect that the economy will “evolve in a manner that will warrant only gradual increases in the federal funds rate”.
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Yellen agreed that the case for an increase in rates was stronger, but that not only was the economy not “overheating” now, but there was actually a “little more room to run”.
Yellen said she expected one rate increase this year if the job market continued to improve and major new risks did not arise.
The Fed last hiked rates at its December 2015 meeting, marking the first rise since 2006 and the end of a near-zero policy (0.25-0.5% target rate) that had persisted since the darkest days of the financial crisis, in December 2008.
Three policymakers saw no rate increase this year. On Wednesday, Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren dissented on the policy statement, saying they favoured raising rates this week. Inflation has remained below that level for more than three years. Steady job gains have pulled discouraged workers back into the job market and yet inflation remains below the two per cent target rate. Every word is there for a reason and “for the time being” is clearly suggesting that the rate hike is close.
The Fed’s next meeting is just days before the November 8th election, making it a hard moment to change policy. Energy and metals prices are rising as the dollar gets a bit weaker.
It is “appropriate” to have one rate hike this year, Federal Reserve Chair Janet Yellen said Wednesday after the bank kept its benchmark interest rate unchanged.
The U.S. Federal Reserve is scheduled to announce a decision on interest rates and publish a new prediction on U.S. economic performance Wednesday at the end of a two-day meeting in Washington. And the near-terms risks to the economic outlook were described as “roughly balanced”, whereas July’s statement only acknowledged that those risks had “diminished”. It expects the economy to expand just 1.8 per cent this year and by an nearly equally sluggish two per cent in both 2017 and 2018. The data also show faltering global trade which hurts economic growth.
A Reuters poll showed the median probability of a September rate rise was about 25 percent.
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FED TO FOLLOW: Investors doubt the Fed will raise interest rates when it wraps up its policy meeting on Wednesday, but are watching closely for hints about future moves. This would heap pressure on the group’s December meeting should economic conditions avoid completely deteriorating between now and then.
