It described household spending as strong, also more positive than last month’s characterization. But one key indicator, which doesn’t get much attention, is showing signs of accelerate growth ahead: The Citigroup U.S. Economic Surprise Index gauges the actual results of key economic data points against Wall Street expectations in the months prior. Non-farm payrolls rose by 287,000 jobs in June, dispelling some concern that hiring had slowed, after May’s gain of 11,000. “The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to two percent inflation”.
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Fed policymakers seemed poised for a small rate hike in June as economic growth picked up following a weak winter. The Fed’s assessment of risks is a potential indicator of where it is leaning on policy.
Before getting too anxious about how high or how fast the FOMC will raise rates ahead, consider that they still see rates being highly accommodative. That also leaves the upcoming September meeting as being in-play. By saying risks have diminished, it appeared to be indicating a rate increase is possible soon, though not certain. The Fed is most likely to wait until December to raise rates, according to a Reuters poll of economists.
Optimism that corporate earnings would help support gains has boosted the gauge by 19 per cent from a February low.
The comments on inflation were little changed from the previous statement and there were no explicit hints surrounding the September meeting, although the overall tone suggested a greater probability of a move as long as the inflation outlook did not deteriorate once again.
Officials are still warily watching developments from overseas for new threats to the outlook.
While both Republicans and Democrats have criticized the Fed, Donald Trump’s policies are likely to be more disruptive to the USA economy and financial markets with his threat to upend decades of consensus on free trade, his discussions of whether to renegotiate US debt, and his ambitious tax-cut plans that many independent analysts say would add dramatically to federal debt. Fed chairwoman Janet Yellen has previously said that she expects further increases in 2016, but as of Wednesday that still has not occurred.
OIL: Benchmark U.S. crude rose 13 cents to $43.05 per barrel on the New York Mercantile Exchange while Brent crude, used to price global oils, fell 18 cents to $44.69 a barrel in London. Stock markets have also bounced back quickly from Brexit and are at all-time highs. It said, “the labor market strengthened” and “economic activity has been expanding at a moderate rate” since the Fed’s mid-June meeting. China’s economic slowdown has been another source of angst inside the central bank.
Yellen will have a chance to clarify the Fed’s thinking when she speaks in Jackson Hole, Wyoming, on August 26.
Though the job market hit a rough patch in May, data since the Fed’s June 14-15 meeting have been more upbeat.
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Following the statement, Fed funds futures traded on the CME, a kind of betting pool showing investor expectations, implied a 46.5 percent probability that the committee would increase rates before the end of the year, with the larger balance expecting the target rate to remain untouched through December.
