Mumbai: While Asian and emerging markets, including India, will heave a sigh of relief that US Federal Reserve left rates unchanged at its policy review last night, the US central bank has left the doors open for a rate hike in September.
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A statement following the two-day meeting of the FOMC said that the labor market perked up in June after a disappointing May, and household spending is increasing. Since the Fed’s meeting in June, “the labor market strengthened and…economic activity has been expanding at a moderate rate”.
Bethune said he still thought the Fed would wait until December before raising rates but that a September move was possible if hiring remains strong and the global economy and markets remain stable. But Fed Chair Janet Yellen has been hinting that a rate hike could take place later this year. Park Jong-hong, Arirang News.
Heading into the Fed’s decision, bond traders saw a growing likelihood of a rate increase this year. “We continue to look for a second rate hike in December, and we still believe we’d need to see some blockbuster employment and inflation data to make September a realistic possibility”.
Gold edged up on Thursday, clinging to gains from the previous session when it rose 1.5 percent to a two-week high, on a weaker dollar after the U.S. Federal Reserve left interest rates unchanged. The statement also said officials expect “that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”.
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. However, the tone of the policy statement which accompanied the announcement was generally adjudged to be relatively hawkish – a factor which is likely to help the US Dollar (currency: USD) moving forward. Stock markets have also bounced back quickly from Brexit and are at all-time highs.
But the statement pointedly said: “Near-term risks to the economic outlook diminished”, among its most positive appraisals in months.
In December, when the Fed raised its benchmark rate from a record low near zero, it also laid out a timetable for up to four additional rate hikes this year.
There is a 20 percent chance of a rate hike in September, according to the CME Group FedWatch tool.
The U.S. economy, however, has suffered little initial impact from the so-called “Brexit” vote.
A rate increase was postponed at the June FOMC meeting due to concern about a downturn in domestic job growth and uncertainty preceding Britain’s referendum on leaving the European Union.
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Fed policymakers have used the conference to give major steers on central bank policy.
