In a sign the Fed wants to keep a rate hike on the table for later this year – perhaps as early as September when it meets again – it included this phrase in a statement released after the meeting: “Near-term risks to the economic outlook have diminished”.
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The dollar fell, however, as some in the currency market had hoped the Fed would give a clearer indication that it could raise rates within the year. Job gains were “strong” in June and indicators “point to some increase in labour utilisation in recent months”, the Fed said.
While the household spending picks up pace, business investments have remained relatively slow.
In fact, Fed officials noted that inflation continues to be low, partly because of falling energy prices, which suggests they feel no pressure to raise rates anytime soon.
While both Republicans and Democrats have criticized the Fed, Donald Trump’s policies are likely to be more disruptive to the US economy and financial markets with his threat to upend decades of consensus on free trade, his discussions of whether to renegotiate USA debt, and his ambitious tax-cut plans that many independent analysts say would add dramatically to federal debt.
The central bank gave no specific timetable for when it might resume the rate hikes it began in December, when it raised its benchmark rate from a record low. McBride said a rate hike would not happen in November because of the US election, and unless the Fed raises its key rate in September, the only remaining window this year will be in December.
And the Fed noted that since its June meeting data indicates “that the labour market strengthened and that economic activity has been expanding at a moderate rate”, the Fed said.
The good news: The Fed clearly sees improvements in the USA – and if it were to base its decision exclusively on the health of its own economy, Ren estimates it would likely have already been confident to move rates higher.
The Federal Open Market Committee made its first and only rate hike in December.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 per cent inflation.
The optimistic statement by the Fed on Wednesday may already be shifting the rate hike debate.
This was despite the greenback rising before the Federal Reserve’s latest policy statement. This long period of a delay in the rate hike shows that the regulatory authority is waiting for a very obvious evidence of economic strength. “It was more confirmation that the Fed sees things as slightly better than they did the last time they met (last month)”.
Also as expected, the Fed improved its assessment of the labor market, noting that conditions have “strengthened”.
He said should more inflation come into the economy, the Fed’s long pause option would be eliminated and it would need to take swifter action to move rates up or risk the unintended consequences of an overheating economy.
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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.
