Fed keeps rates unchanged, says risks to outlook reduced

The U.S. Federal Reserve delivered what investors expected on Wednesday, it opted not to raise interest rates and it was more upbeat about the economy than it was a month ago. That marked a mild upgrade from June, when the Fed said household spending had strengthened and economic activity appeared to have picked up. The Fed again expressed confidence that it expects inflation to rise to its 2% target over the medium term.

July 28 (BusinessDesk) – The New Zealand dollar rose after the Federal Reserve said near-term risks for the world’s biggest economy were diminishing, keeping on track expectations for an interest rate hike this year.

“Near-term risks to the economic outlook have diminished”, said the Fed in a statement after concluding two-day monetary policy meeting.

Now, after years of downward pressure on global rates, the Fed pegs that neutral rate at around 3 percent.

The Federal Reserve said the us economy is undoubtedly headed in the right direction, but would benefit more with a gradual and measured rise in interest rates. “Of course, this is a Fed that’s going to be very cautious”, Anika Khan, the senior economist for Wells Fargo, said on “Power Lunch”. Due to small USA economy long-term growth estimates by the central bank policymakers, the rate hikes has been reduced to two.

Dr. Stephen Miller, a UNLV economics professor and director of the Center for Business and Economic Research, said he had mixed feelings about the prospect of the Fed raising rates.

But seven months into the year, the Fed’s plans have been delayed by weak growth in the first quarter, labor-market volatility in the spring, and uncertainty surrounding the Brexit vote.

The policy-setting committee will now meet at the beginning of November, but a rate hike at that time also unlikely especially since it comes before the U.S. presidential election.

All eyes now rest on Yellen’s speech at Jackson Hole symposium in August, where she may or may not make a significant commentary on central bank policy outlook.

Fed Chairwoman Janet Yellen has won broad support among Fed officials for a patient approach to raising rates.

The dollar sagged against its peers as some in the currency market had hoped the Fed would give a clearer indication that it could raise rates within the year. “Although the probabilities for a rate increase in September have increased, I still foresee December now a 57 % probability as the most likely time for a rate increase”.