Maybe that remains the case, but central banks around the world are facing questions about the continued effectiveness of loose policy given that in many markets interest rates are already ultra-low or in negative territory. While a Fed rate rise in December is likely, there is at least some risk that events may conspire to move out to next year, further slowing the outlook for higher rates. It was the first time it has used that wording since late a year ago, when it most recently raised rates. However, the full report that was published indicated major difference of opinion between the Fed’s board members with some speaking about interest rates rising in a gradual and planned manner but three members even saying they don’t expect a rate hike in 2016.
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USA interest rates are staying the same-for now.
Federal Reserve chair Janet Yellen last night braved mounting opposition inside and outside the U.S. central bank and delayed an interest-rate increase again to give the economy more room to run. Inflation remains below the USA central bank’s target of 2 per cent and members saw room for improvement in the labour market.
“But it would be sensible, given the finding of a bit more running room, to wait to see some continued progress, evidence that we continue to progress toward our objectives”, she said.
“Almost since the turn of the year core inflation has been stuck at 1.5 percent with really no clear signs that it’s moving up yet”, said David Stockton, former Fed chief economist and senior fellow at the Peterson Institute of International Economics. Core inflation is tipped to hit 2% in 2018, after running at 1.7% this year and 1.8% in 2017.
The Fed, meanwhile, has forecast 1.8 per cent growth in 2016 and two per cent over the next two years. The three officials are all presidents of regional Fed banks – Esther George of Kansas City, Loretta Mester of Cleveland and Eric Rosengren of Boston. Markets also have increased comfort that, when they do occur, the pace of rate increases is likely to be pretty glacial for the medium term. Wednesday’s meeting kept US interest rates at 0.25 to 0.5 percent, though three out of ten of the Fed voters came out in favor of a quarter percent rate hike. It also reduced its longer-run rate forecast to 2.9 per cent from 3 per cent.
Other Fed officials, including vice-chair Stanley Fischer, made similar observations, seemingly part of a collective signal that a September rate hike was probable if not definite.
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Yellen says this makes her believe that people who’ve been discouraged are returning to the labor force because robust job growth has convinced them, “Hey, maybe I’ve finally got a shot at getting a job”. An index that tracks the services economy, where most Americans work, fell to its lowest level since 2010.
