“The Fed minutes made it clear that concerns over labor market conditions are enough to once again delay a rate hike, bringing a sigh of relief from financial markets, but raising long term concerns about the USA economy’s growth”, Tara Sinclair, chief economist at jobs site Indeed, said Wednesday in an email. Its statement acknowledged the May slowdown in hiring, adding that the Fed expects labor-market indicators to continue to strengthen. Yellen is signaling her belief that the US economy is improving but remains defined by so many uncertainties that it’s unclear when the Fed should resume raising interest rates. She warned that if the United Kingdom exits the European Union and sparks economic and financial uncertainty across the globe, the USA could be negatively affected. However, it has backed away from further monetary policy tightening though the Chairwoman, Janet Yellen, implied several times that there will be a raise this year. Although the inflation rate is expected to remain low in the near term, officials expect an increase to 2% over the medium term. In March, the Fed estimated the economy would grow at a 2.2 percent rate. Longer-dated projections saw a more pronounced move lower, with the median now forecasting three hikes in each of 2017 and 2018, in contrast to the four that were previously expected.
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The decision to wait was unanimous. Even Ms Esther L George, president of the Federal Reserve Bank of Kansas City, did not want to raise rates. The Fed put any further rate hikes on hold. In a speech last week, Chair Janet Yellen said that while the USA economy looks fundamentally solid, there were too many uncertainties to give a specific timetable for upcoming rate hikes.
The Fed’s next meetings are in July and September. It also projected a more gradual path of rate hikes in 2017 and 2018.
Stocks climbed slightly after the statement, though most Fed watchers did not expect another rate hike at the June meeting. We think that remains the playbook for this cycle – so don’t be too anxious about Fed policy suffocating investor risk appetite. It left interest rates unchanged, maintaining the Fed Funds rate-the rate that banks charge each other for overnight loans-at 0.25% to 0.50%.
“Some of the factors weighing on economic growth had been expected”, she said.
Fed officials increasingly think the economy has exited its post-crisis period, according to economic projections the central bank published Wednesday. The recovery, in other words, may be incomplete, but it is also over.
Yellen, however, recently warned that a British exit from the European Union could have a significant economic impact, a concern shared by other Fed policymakers.
Fed officials keep stressing that only when the latest data shows the economy edging consistently toward full health will they resume raising rates. After a disastrous first quarter in which the domestic economy expanded only 0.8 percent and consumer spending appeared to have slowed, the Fed in March cut its rate assessment in half. But the Fed has hesitated to move.
With growth likely to be modest and inflation under its 2 percent target, the Fed has the leeway to raise rates more slowly.
Their unemployment rate forecasts were little changed.
Consumer spending has driven domestic economic growth even as other nations have spent less on USA goods.
Ms Yellen said it was important not to overreact to one or two monthly readings. Does the Fed see growth as stable? A Fed index that summarises labour market conditions has fallen to the lowest level in seven years.
Officials also have expressed increased concern about inflation expectations, which play a significant role in determining future inflation.
Some economists see evidence that the Fed itself is playing a role in the slowdown. We are not overly surprised, but continue to believe that the Fed will take global economic and financial market conditions into account in future deliberations.
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Ms Yellen said she disagreed with those critics.
