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Fed Keeps Interest Rate Steady, Cites Stronger Economy

The economic fundamentals in the US have been strong and unaffected by global weakness in countries such as China, and the Fed should have raised rates already this year, said Greg McBride, chief financial analyst for Bankrate, the North Palm Beach, Fla.-based financial content company.

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The statement said business investment has been soft, but household spending “has been growing strongly” and there had been “some increase in labor market utilization in recent months”.

The language added to today’s statement that “near-term risks to the economic outlook have diminished” is a clear indication that a September rate hike might be coming…

“Near-term risks to the economic outlook have diminished”, the Federal Open Market Committee said in a statement published this morning (Sydney time) in Washington after its two-day meeting.

Many policymakers have urged caution on raising rates as the country’s economy continues to recover.

Overall, we still expect the Fed to raise rates at least once and probably twice this year, taking the fed funds target range to between 0.75% and 1.00% by year-end. It was trading 104.85 yen from 105.31 yen in NY, and down 0.22 per cent against the Singdollar at 1.3505.

USA crude rose 0.3 percent to $42.04 a barrel on bargain hunting after sliding to a three-month low of $41.68 on Wednesday after news US crude and gasoline stocks had surged, reflecting weak demand during the peak summer driving season.

It also appeared to see less threat to U.S. growth from Britain’s vote to leave the European Union, which took place a week after the last FOMC meeting. Since then, though, a resurgent USA economy, the bounce-back in hiring and record highs for stocks have led many economists to predict a Fed move by December if not sooner. “There wasn’t any tip that the Fed will raise rates in September”, said Mike Materasso, co-chair of Franklin Templeton’s fixed income policy committee in NY.

But the decision to hold off on rates once more marks a dramatic shift in the Fed’s thinking from the start of the year.

The only dissenting member of the Federal Open Market Committee (FOMC), the Fed’s policy-setting committee, was Esther George, president of the Kansas City Fed.

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While, Fed Chairwoman Janet Yellen has repeatedly mentioned intentions of a gradual Fed rate hike, market volatility and the unexpected dip in job gains have upset the cause. Attention will now be in the second quarter US gross domestic product estimate expected on Friday, which could show improvements from the previous quarter. “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run”.

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