It’s all about the data. And for nearly as long, the data has shown improvement and suggested that a rate hike was likely this summer. She also mentioned that while the jobs report “was, on balance, concerning” she thinks that “one should never attach too much significance to any single monthly report”. The thrust is on its communication in the statement through updated economic projections (especially the so-called “dots”) and Fed chair Yellen’s press conference.
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This week’s Federal Reserve meeting is likely to provide little hint about the now remote possibility of a mid-summer interest rate hike, economists say, But it could deliver a more sobering message: Policymakers expect slower growth and lower rates the next few years.
USA stock index futures were lower for the fourth straight day as investors braced for the Federal Reserve’s policy meeting and a referendum on Britain’s European Union membership.
The bulk of market observers don’t expect any action when the FOMC ends a two-day review on Wednesday, but expectations for a rate hike are high in the coming months.
Yellen outlined the Fed’s thinking by explaining despite poor employment data, the U.S. economy was expected to grow at a moderate rate.
The biggest uncertainty is whether the job market has succumbed to a prolonged slump or is merely enduring a brief pause.
But she added that she didn’t place too much stock in a single report and portrayed a generally improving labor market that added an average 230,000 jobs a month previous year and boasts an unemployment rate below 5%.
Other economic barometers have also sowed doubts – from tepid consumer spending and business investment to a slowdown in worker productivity to stresses from China other major economies.
The Michigan survey showed that the median response to the question about what average annual inflation would be between five and 10 years from now was 2.3 percent, down from 2.5 percent in May.
Last year, speculation about a United States interest rate increase saw stock markets around the world tumble.
In late May FOMC members were still confident, predicting a rate increase in June or July.
And the Fed’s key data was giving it the excuse it needed to raise rates. And it anticipates policymakers will project just three rate hikes in 2017 and 2018. Nervous investors sent markets sinking, and fears arose of a new recession. The unemployment rate is forecast to remain at 5.1%.
Fed officials keep stressing that their policymaking is “data dependent”. But then the Labor Department reported that a disappointing 38,000 were created in May, raising fresh uncertainty about the health of the economy. The ECB head has been throwing the kitchen sink at the markets in recent months trying to stoke both growth and inflation from ultra-low levels but without any tangible effects – apart from driving safe haven bond yields to record low levels. The need to discourage such excessive risk-taking is why even analysts who think the economy still faces challenges predict that the Fed will nevertheless raise rates at least once this year.
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“Weak labor market data have messed up the carefully-prepared script for the Fed’s next rate move”.
