Takeaway From Fed Meeting: Expect a Rate Increase This Year

The only question seems to be when.

It said that “underutilization of labor resources has diminished”, dropping the modifier “somewhat” to describe the change. America’s first interest rate hike in nearly a decade could come on September 17 when the Fed holds its next meeting.

Fed officials wrapped up this month’s two-day policy meeting on a positive note, saying that the U.S. economy was “expanding moderately” and that the job market has seen steady improvement. It’s more consistent with the FOMC June statement and with recent communications. The few modifications suggested a healthier economy.

The policymakers’ view of the labor market improved from last month; their statement cited “solid job gains and declining unemployment”. He expects that to occur in September.

“We’re close to where we want to be, and we now think the economy cannot only tolerate but needs higher rates”.

Yellen has repeatedly stressed that when the Fed does raise rates it will do so only gradually.

The central bank has kept its benchmark federal funds rate near zero since December 2008 to help boost economic growth during and after the Great Recession. It is imperative to state that any hike in interest rates other rates like mortgage, auto loans and corporate borrowing could follow suit and start rising.

The Commerce Department said US gross domestic product expanded at a 2.3 per cent annual rate. “The Fed doesn’t want to upset the apple cart with any type of market shock that could cause further problems in the global economy, whether that is in China or in Europe”.

FILE – In this July 16, 2015, file photo, Federal Reserve Chair Janet Yellen prepares to testify before the Senate Banking Committee on Capitol Hill in Washington.

Stock investors responded positively.

US stocks spiked slightly after the Fed’s statement.

However, the Fed reiterated its need to see inflation expectations return to 2 per cent. There are concerns that low oil prices and the strong dollar could be a drag on inflation.

The unemployment rate fell to 5.3 percent in June, from 10 percent at the 2009 peak. Pay growth remains generally sluggish, for example, and many people are working part time because they can’t find full-time jobs.

The Center for Popular Democracy has criticized the Fed for not focusing enough on wage improvements as a factor in deciding when to raise rates.

Ryan Wang, an economist at HSBC, said: “The decline in inflation is mostly a result of the steep drop in oil prices over the past year”.

The Fed is closer to achieving its other main goal: maximizing employment. Monthly increases in non-farm payrolls have averaged 208,000 so far this year.

It also means Fed-watchers must hone in on key economic reports to catch the signals that Wednesday’s meeting didn’t offer.