As Fed ends meeting, few expect much clarity on next hike
The US central bank said the economy had expanded at a moderate rate and job gains were strong in June.
The Federal Reserve has repeatedly said it wants to see increasing job growth and signs of stronger inflation, before it raises rates.
Federal Open Market Committee members upgraded their assessment of the United States economy in their monetary policy statement, released after their two-day meeting.
But the turmoil in financial markets and a slowdown in global economy since the start of the year have raised increased concerns about the strength of the us economy, forcing Fed policymakers to hold off on any further rate hikes since then.
Fed officials would now turn their attention to today’s first initial estimate of second-quarter GDP, which was expected to show a “healthy rebound” from the previous quarter.
Carl Tannenbaum, chief economist at Northern Trust Corp, Chicago said: “The next thing we will get excited about would be Janet Yellen’s speech at Jackson Hole. Nevertheless, in our estimation, the utility of extraordinarily low interest rate levels has long since passed much effectiveness in stimulating real economic growth and for some time now has exclusively been influencing the financial economy as a price-supporting mechanism”.
However, there is still much to be watched in the economy and financial markets between now and September that could be perceived as risks by the Fed.
“The FOMC is acknowledging the post-Brexit calm in the markets, but is still cognizant about the uncertainties in the global economic outlook”, Bank of America Merrill Lynch economists wrote Wednesday.
The chances of an interest rate rise in the United States in September rose early yesterday only to diminish substantially later in the day.
Gold has climbed 26% this year, partly as the Fed indicated it would hold rates lower for longer.
But the central bank’s statement after this week’s decision has investors asking if we’ll see another interest rate hike in 2016.
Benchmark 10-year Treasury note yields fell four basis points, or 0.04 percentage point, to 1.52 percent as of 2:24 p.m.in NY, according to Bloomberg Bond Trader data.
Inflation rate hawks and doves had been split at the June meeting over how strong the economy was, and voted almost unanimously to hold off on raising rates. The statement contained three references to recent improvement in the labor market.
Although the USA stock market has closed with gains for four weeks in a row, Wall Street was on its toes this week with the Fed decision looming, and thus has been posting mixed closings in the first three days of trading.
Investors are divided on whether the Fed will raise rates before the United States presidential election.