The Federal Reserve upgraded its assessment of the economy’s recent performance and said near-term risks to the outlook have diminished, effectively leaving the door open to raise rates later this year, possibly as early as September. But some analysts who had doubted that the Fed would be ready to raise rates as soon as September said Wednesday’s statement appeared to revive that possibility.
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“The Committee now expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen”, the committee stated. But it said in a statement after its latest policy meeting that it still plans to monitor global economic threats and financial developments to ensure that they don’t slow the economy.
Following a two-day meeting, central bank officials voted to keep the federal funds rate at between 0.25 percent and 0.5 percent, where it has been since December.
But after a unanimous decision to leave rates unchanged at the Fed’s last meeting in June, there was one dissent at the July meeting. USA stocks extended declines before later reversing course to trade largely flat in the session.
By saying risks have diminished at this month’s meeting, the Fed looks to be signaling an interest rate hike is possible in coming months. “A rate increase is warranted this year, most likely at the end of the year, but a lot has to do with a benign world arena”. It also declared that near-term risks to the economic outlook have ebbed.
“With financial contagion to the USA from Brexit limited, the timing of the next Fed move will be more dependent in the coming quarter than it has been all year”, Mr Metcalfe said.
FED WATCH: The Federal Reserve is scheduled to release its latest monetary policy statement later Wednesday.
The federal funds rate will remain in the range of 0.25 percent to 0.5 percent. “The good news is that overall economic growth will likely post a solid reading in the second-quarter on the back of solid consumer spending”.
The Fed also painted a generally positive portrait of the USA economy. Household spending had grown strongly and the labor market had also strengthened since the June meeting.
Policymakers had not been expected to raise rates, out of concern that a hike could stifle fragile growth. Business fixed investment, however, has been soft.
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Fed policymakers also are hesitant to lift rates too quickly when several other central banks have pushed rates further into negative territory.
