Fed Leaves Rate Unchanged

Janet YellenJanet L. Yellen. Credit Drew Angerer for The New York Times

The Federal Reserve on Wednesday left interest rates unchanged while reiterating that risks to the U.S. economy have reduced and the labor market is improving, suggesting conditions are getting more favorable for a possible rate hike later in the year.

“Near-term risks to the economic outlook have diminished,” the Federal Open Market Committee said in its statement Wednesday after a two-day meeting in Washington, before repeating language from June that the panel “continues to closely monitor” inflation and global developments. Job gains were “strong” in June and indicators “point to some increase in labor utilization in recent months,” the Fed said.

The U.S. central bankers are taking stock of the economy’s progress in the wake of the U.K.’s vote last month to leave the European Union, as well as the large swing from May’s soft labor report to June’s rebound. While Chair Janet Yellen has repeatedly stated that the Fed is likely to raise interest rates gradually, market volatility and the unexpected dip in job gains have delayed such plans.

“It’s kind of an upbeat statement, although guarded,” said Roberto Perli, partner at Cornerstone Macro LLC in Washington and former associate director for monetary affairs at the Fed Board. “It’s a sign of a little bit of confidence, if you want, in the outlook going forward.”

The committee said it expects “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” Without reference to the specific timing of the next potential rate increase.

But economists have said it is possible the Fed increase rates in September, provided the economy remain fairly strong ahead of September meeting.

“You have to view September as a very real possibility for a rate hike, but it’s not our base case,” said Luke Tilley, chief economist at asset manager Wilmington Trust Corp. “If the data comes in fairly strongly ahead of September, they’ve positioned themselves to do something.”

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya; Email: [email protected]

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