(TNS)—Federal Reserve policymakers said Wednesday they were holding a key interest rate steady but signaled a hike could come this fall as their concerns have eased about a slowing job market and the fallout from Britain’s vote to leave the European Union.
Following a two-day meeting, central bank officials voted to keep the federal funds rate at between 0.25 percent and 0.5 percent, where it has been since December.
But there was a markedly improved characterization of the U.S. economy in the statement released by the policymaking Federal Open Market Committee compared with what was said after the last meeting in June.
The labor market had “strengthened” since June, with “strong” job gains and household spending that “has been growing strongly,” the committee said Wednesday. Policymakers noted that “near-term risks to the economic outlook had diminished.”
A key risk that had eased was the potential for the effects of the “Brexit” vote to cause long-term turmoil in financial markets and hinder U.S. economic growth.
While world financial markets tumbled sharply in the immediate aftermath of the British vote, they have rebounded since then. Major U.S. stock indexes hit record highs last week.
The Fed statement’s upbeat language opened the door for a small rate hike at the committee’s next meeting, in September.
“The tone of the statement reaffirms our view that the FOMC is likely to raise its policy rate at the September meeting, so long as the labor market continues to perform,” Barclays said in a research note after the statement was released.
But Lindsey M. Piegza, chief economist at brokerage firm Stifel Nicolaus & Co., says she thinks the Fed is unlikely to raise the rate any time soon, noting the statement did not say near-term risks to the economy had disappeared.
“After all, ‘diminished’ translates into still-present with strength in some sectors merely offsetting weakness in others,” she says.
The Dow Jones industrial average rose about 50 points after the statement was released but then fell about the same amount, closing down 1.58 points at 18,472.17. Stocks would be expected to decline in the face of a potential rate hike because it would make saving money more attractive.
The Fed has been expected to hold the rate steady Wednesday, with the odds of a hike at just 3.6 percent, according to a closely watched barometer from the CME Group futures exchange.
But the odds increased to 26 percent for September, according to futures activity before the statement was released. After the statement, the odds for September declined to 18 percent.
Based on futures prices tied to the federal funds rate, investors now believe there’s nearly a 40 percent chance the FOMC will wait until December to increase the rate.
Fed policymakers seemed poised for a small rate hike in June as economic growth picked up following a weak winter. But the May jobs report was shockingly poor—just 38,000 net new positions were added, later revised down to 11,000.
Fed policymakers decided they wanted to see more data to determine if the one-month plummet in job growth was an anomaly or a signal …read more
From:: Real Estate News