31 July, AtoZForex.com, Lagos – Before the Fed met on Wednesday, it is clear that the markets were not anticipating a rate hike. As expected, the Fed didn’t raise rates, they simply reiterated that they are on course for interest rate hikes this year for the first time in almost a decade without providing a clear signal on the likely timing of the commencement of the hikes. The further strength in the job markets adds to data supporting the impending rate hikes as the policy makers said their decisions remain “data dependent”. This therefore puts emphasis on the figures on growth, jobs and inflation which will present the major indication as to whether the Fed will start raising rates in September, as many economists expect, or later in the year.
The labor market continued to improve, with solid job gains and declining unemployment,” the Federal Open Market Committee said in a statement Wednesday in Washington. It dropped the modifier “somewhat” from its description of the decline in labor-market slack. Another interesting notice from the statement a one-word change in the Fed’s language which can be interpreted for further clues. They noted that need to see “some further improvement in the labor market,” adding the modifier “some,” and it must be “reasonably confident” inflation will return to the 2 percent goal over the medium term.
In a bid to answer the question “When will the Fed raise rates?”, the latest result of an ongoing CNBC poll still shows a majority expecting a September rate hike, but that majority is rapidly shrinking. CNBC also stated that according to the Fed funds futures and financial instruments which the market uses to handicap rate hikes, are currently pointing to the first move in December.
The Fed summarized the economy thus: Growth in household spending has been moderate and the housing sector has shown additional improvement; however, business fixed investment and net exports stayed soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey‑based measures of longer-term inflation expectations have remained stable.
Not much of a hint was given in the meeting as regards specific timing, hence leaving investors and traders guessing.