The U.S. central bank, which is expected to lift rates in September, said the economy had overcome a slowdown in the first quarter and was “expanding moderately”.
Underutilization of labour resources has diminished since early this year. The Fed doesn’t like to change policy going into a presidential election, so they’ll be done with a five-month cushion.
Second-quarter National income figures confirmed things are remain rising with a boring rate, but included in the account was obviously a a bit of truck within the monthly rising prices that can help the Fed maneuver to a fee rise. Strong economic growth could make the case for a September rate hike. But before taking any action it said it wanted to see “some further improvement in the labour market”.
The US Fed left the door open for a possible rate hike in September after hailing improvements in the economy and the jobs market.
Deutsche BankAt Bank of America Merrill Lynch, Michael Hanson wrote that, like Deutsche Bank and other firms, he doesn’t expect any wholesale changes to the Fed statement, looking instead for “a cautiously optimistic if noncommittal message”. Indeed, its statement will likely reflect the strength of the labour market, indicating the absorption of slack and the tentative signs of wage pressure.
Gross domestic product rose at a 2.3% annual rate from April to June, according the Commerce Department. If the market is behind the Fed, hawkish commentary could provoke higher short-term US rates, thereby boosting interest rate differentials in favor of the US Dollar for the foreseeable future. I agree with the Fed that the commodity price drops are transitory, and perhaps ready to reverse themselves.
The Fed in our view is unlikely to pre-commit to a September rate hike at today’s meeting.
Also, the first formal rate hike is expected to only go to 0.25% – not even up to 0.50%. Clearly the Fed has got an very bad lot to have to try to balance between our economic activity, our inflation – which is well below target, the labor market – which continues to improve, strengthen and tighten and geopolitical themes which universally speak to a degree of risk off relative to the US equity market.
Specialist Peter Giacchi, right, works with traders at his post on the floor of the New York Stock Exchange, Wednesday, July 29, 2015. “No change as expected, markets appear comfortable with that, it certainly is not a surprise”.