Yahoo Finance This is the most positive Fed statement we've seen in a while
The Federal Reserve once again left interest rates unchanged Wednesday, following its two-day policy meeting, citing an improving labor market and progress in economic growth.
The widely expected move comes amid mixed economic reports and after Fed officials agreed that it was “prudent to wait” for more data on the consequences of Britain’s June 23rd decision to leave the European Union. The Fed’s statement reiterated that it will “closely monitor” developments abroad.
For the first time this year, the Fed noted, “near-term risks to the economic outlook have diminished,” implying that officials are keeping their options open for a rate hike this year. The previous two Fed statements withheld mention of global economic risks, while the March statement warned that developments abroad “pose risks.”
“Today’s FOMC statement was more upbeat than the cheerless one released after the June meeting,” said Michael Feroli, JP Morgan chief US economist. “[T]he improved risk assessment could begin to lay the groundwork for a hike in a few meetings’ time, provided the data cooperate.”
The Fed’s cautious, yet generally positive, economic outlook notes “the labor market strengthened and that economic activity has been expanding at a moderate rate. Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months.”
The statement follows mixed jobs reports in which the US economy added only 11,000 jobs in May, the lowest level in six years, but rebounded by 287,000 jobs in June, the strongest growth in 2016. Other employment data has been varied. The hiring rate has slowed, but jobless claims are near record lows. Fed officials have said that they are waiting for additional data before placing weight on recent employment numbers.
Meanwhile, inflation, which has run below the Fed’s 2% target for years, has shown signs of improvement in recent months, as oil prices stabilized. The personal consumption expenditures index, the Fed’s preferred measure of price inflation, increased 0.9% in May from the year before, as core inflation rose 1.6%. However, the Fed sees inflation remaining “low in the near term.”
With only three policy meetings remaining in 2016, expectations are low that the Fed will raise rates twice this year, as officials forecasted in June. Shortly after the Fed began lifting rates in December—for the first time in over a decade—turmoil in US markets and uncertainty abroad convinced many officials to delay further rate increases.
“At some point the Federal Reserve has to be willing to raise interest rates under a less-than-perfect set of conditions,” said Greg McBride, Bankrate’s chief financial analyst. “If they’re waiting for world peace and harmony before raising interest rates again, they’ll never do it.”
While the Fed decided hold its benchmark rate between 0.25%-0.50%, one member of the committee, Esther L. George, voted against the decision, preferring to raise the federal funds rate to 0.50% to 0.75% at this meeting.
“The July meeting is the setup for a potential rate hike in September,” wrote Chris Rupkey, chief financial economist at The Bank of Tokyo Mitsubishi. “The economy is better than Fed officials think. Rate hikes are coming. Bet on it.”
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