“In its latest policy statement, the central bank said the labor market strengthened and economic activity expanded at a “moderate rate”.
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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. However, it noted in the subsequent monetary policy statement that the labor market has “strengthened” and said other indicators were pointing to growth.
Gold gained for a second straight day after US durable goods orders dropped, adding to speculation that Federal Reserve policy makers will be slow to raise interest rates.
The Fed’s preferred inflation rate now stands at 1.6 per cent and has been below target for more than four years. Household spending is believed to be “growing strongly”, though inflation and business investment metrics have continued to underwhelm. US stock markets reacted positively after the Fed left rates unchanged as traders commented that the statement was neutral rather than hawkish or dovish. Bill McBride of the Calculated Risk Blog said in his FOMC preview post that such a change would suggest that the “FOMC is probably preparing – if the improved data flow continues – to raise rates in September”.
The Federal Reserve is keeping its feet on the brakes when it comes to raising the federal funds rate.
Fed officials had been expressing angst over geopolitical developments, particularly June’s Brexit vote. The pace of growth is expected to have more than doubled.
In contrast, Apple Inc shares rose 7.2 percent after the company sold more iPhones than expected in the third quarter and gave an upbeat current-quarter forecast.
Jeremy Aguero, principal analyst with Las Vegas-based Applied Analysis said the economy’s performance warrants an increase in the interest rate.
“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.
That was scaled back to two hikes this year after central bank policymakers issued new projections in which they also lowered their longer-term growth estimates for the US economy.
But she called on markets not to be pessimistic about the health of the USA economy, particularly after the Labor Department’s lower-than-expected May job reports.
That’s the same level it has been since the bank shocked investors with a small hike last December.
In the wider markets, Asian stocks edged up on Thursday after the Fed provided an positive assessment of the United States economy and lifted risk sentiment. That statement reset market expectations for rate hikes.
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Markets will now look to next month’s data and Yellen’s speech at Jackson Hole on August 26 in trying to assess the timing of the next Fed move.
