In a carefully worded statement, the central bank noted that the economy has expanded “moderately”.
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The challenge is that the U.S. economy is generating very little inflation – not to mention disinflation coming from China and almost no inflation in Europe – leaving many questioning whether the Fed even should be considering a rate rise.
US economic growth likely accelerated at an annual rate of 2.6 percent in April-June after shrinking in the first quarter, according to a Reuters poll of economists.
More than job creation, the falling inflation is a major hindrance for the Fed to take a hike decision.
The Fed has kept its key short-term rate at a record low near zero since 2008. The Fed will know more on Friday when the latest jobs report is published, but if wage growth is one of the indicators of a robust labour market, Yellen will have some difficulty using conditions in that market as a basis for a rate increase this year. Sttocks rose and the dollar was stronger against a basket of currencies.
Investor sentiment was also on the up after the US central bank hinted that it would raise interest rates before the end of the year.
“The ECI and payroll data will both be released within the next seven business days and should provide the market with a good indication as to whether or not the Fed will indeed hike in September”, she added.
The Fed also said it now only needs to see “some” more improvement in the labor market, a qualification that some analysts said suggested it believes the recent solid U.S. job gains will continue. The Singapore-dollar Sibor is correlated with the US-dollar Libor, a benchmark rate used around the globe by banks lending money to one another.
“Over the near term, we still expect the Fed to raise rates in September”.
“The most important thing the Fed is trying to communicate is not the timing of the first liftoff, but the pace, and continuing to try to counsel the markets about the pace being gradual”, said Roger Bayston, senior vice president and director of fixed income at the Franklin Templeton fixed-income group in San Mateo, California.
On Wednesday, the Federal Reserve’s latest monetary policy statement saw the Fed keep interest rates pegged at 0%-0.25%, as expected.
Lewis says if the Fed makes its move in September some costs will go down, but not the basics. For a Federal Open Market Committee that appears pre-disposed to get on with a much-awaited first rate rise, the bar does seem to be set fairly low. But that does not mean the Fed will delay the start of a rate increase cycle that is expected to proceed slowly over the next few years, said Jon Faust, a former adviser to Yellen and an economics professor at Johns Hopkins University. The idea is to avoid weakening an economy that’s still benefiting from low borrowing rates resulting from the Fed’s policies.
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German inflation slowed to a 5-month low in July as energy prices declined further, preliminary data from Destatis showed Thursday.
