The labor market has “strengthened”, the Federal Open Market Committee said after its two-day meeting.
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“Interest rate policy normalisation this year may be hard for the Fed to accomplish, particularly should jobs growth continue on its slowing trend, inflation expectations and realized inflation remain fairly moderate, and both domestic and worldwide political risks continue to unsettle financial markets”, he said. The Fed’s assessment of risks is a potential indicator of where it is leaning on policy.
The next two big events for the Fed are the FOMC minutes on 8/17 and Chair Yellen’s speech at Jackson Hole on August 29. By saying risks have diminished, it appeared to be indicating a rate increase is possible soon, though not certain.
The U.S. labor market data was strong as the economy added 287,000 new jobs in June, both beating market forecasts, and showing that the low 11,000 jobs added in May was a temporary hiccup.
Although mortgage rates are not directly tied to the action of the Fed and depend on the outlook for the economy and inflation, they are likely to remain low. “The Fed wants to keep its options open [for September]”. The policy-setting committee will also meet at the beginning of November, but a rate hike at that time is generally seen as unlikely because it would occur a week before the US presidential election.
Officials are still watching developments overseas for new threats to the outlook. Exploration and production companies declined as U.S.-traded crude fell 2.3% to $41.92 a barrel, its lowest level since April, following a surprise increase in crude-oil stockpiles. Financial markets largely shrugged off the immediate reaction to Brexit, with US indexes hitting highs in recent weeks. China’s economic slowdown has been another source of angst inside the central bank.
Treasuries have rallied in 2016 as the Fed held off on raising rates after liftoff from near zero in December, while central banks in Japan and Europe maintained unprecedented stimulus. However, Yellen did not mention the specifics of the rate hike.
The meeting followed a string of positive readings – particularly on jobs growth and key consumer spending – that has fanned speculation of a tightening in monetary policy despite weakness in most other global economies.
That said, here’s what we learned from the Federal Reserve’s latest meeting.
The Fed has kept interest rates unchanged ever since the last hike in December previous year.
Some economists say they think there will be only one rate hike this year.
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In June, jitters over the looming British vote on had helped persuade the committee not to raise rates.
