The Federal Reserve did say near-term risks to the United States economic outlook had diminished, potentially leading to a resumption of monetary policy tightening this year. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data. The Labor Department said the economy added only 37,000 jobs in May (later revised to 11,000), before adding 287,000 jobs in June.
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In its statement Wednesday, the central bank underlined strengthening labor market conditions, modest expansion in economic activity, and strong growth in household spending, which carried a more upbeat view of the us economy than previous statements.
After a dismal job growth in May and the Brexit shock in June , a few analysts speculated as to whether the Fed’s next move would be a rate cut instead of a hike.
Joel Naroff of Naroff Economic Advisers said the Fed appeared torn between optimism and fear. Two different polls – one by Reuters and another by Wall Street Journal – found that economists expect the Fed to hold rates steady until after the election. “They kept in that they’re still monitoring financial conditions, so even though many things broke positively for the Fed since their last meeting, they want to be extra cautious”.
“No one quite knows anymore where growth would be if we didn’t have eight years of stimulus under our belt”, he said. This triggered some selling in the dollar on Wednesday but the market is still pricing less than a 50-percent chance that the Fed will lift rates by the end of the year.
Meanwhile, in the currency market, the Canadian dollar was down 0.01 of a USA cent to 75.81 cents United States, tracing the downward path of September crude, which fell $1 at US$41.92 per barrel. Global stocks sold off after the United Kingdom referendum and while they have more than recovered their losses, economists said further turbulence may lie ahead.
Bookings for goods meant to last at least three years slid 4% in June, a bigger fall than forecast and the most since August 2014.
In a statement after a two-day meeting, the Fed gave no clear signal about its plans in coming months and weak employment reports in July and August nearly certainly would stay the Fed’s hand again in September.
It was “clearly an attempt to skew the softness in non-farm payrolls (NFP) as a one-off as the Fed looks toward the second half of the year”, wrote independent rates strategist Ian Lyngen.
In Japan, officials are also considering economic stimulus measures to revive the world s third-largest economy, which has always been mired in deflation. “They seemed to check all the boxes in terms of giving a more upbeat tone”.
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But Headland notes that the Fed also might also be dissuaded from making any moves this year due to the uncertainty surrounding the US presidential election in November.
