US Economic Risks ‘Diminished,’ But Fed Leaves Key Rate Unchanged

This new expression might indicate that conditions are getting more favorable for further interest rate hikes in the future. The Fed hinted four rate increases for 2016 after the last December increase which was the first in nearly a decade. Two different polls – one by Reuters and another by Wall Street Journal – found that economists expect the Fed to hold rates steady until after the election.


Last December, when the Fed bumped up the rates for first time after the 2008 financial crises, it also disclosed plans to boost the interest rates gradually to address the market risk. So, while it is likely the economy will be strong enough for the Fed to raise rates in September, it is hard, right now, to predict that. The Fed mentioned that mounting risks to the United States economy have subsided after the Brexit outcome and the labor market is showing signs of improvement.

“Job gains were strong in June following weak growth in May”, the Committee said. Federal funds futures ahead of Wednesday’s statement suggested that traders see close to a 50-50 chance of a rate hike at or before the FOMC’s final meeting this year, in December. The next rate hike is expected in December, if at all.

The Fed’s policy board said the United States economy was improving and left open the possibility of a rate hike as soon as September. George, who has expressed concern that persistently low rates will lead to financial instability, also voted in favor of rate hikes in March and April. The Dow Jones Industrial Average finished with little changed, while the tech-heavy Nasdaq 100 Index rose 0.7 per cent.

Fed Chairwoman Janet Yellen has won broad support among Fed officials for a patient approach to raising rates.

When Britain did vote to leave the union and markets sank, some economists even suggested that the Fed’s next move might be to cut, rather than raise, rates.

Sweet said if the economy performs as expected, “tighter monetary policy this year will be warranted”. Business fixed investment, however, has been soft. In the spring, consumers boosted spending at the fastest pace in a decade.

All that strength might argue for September rate hike, especially if monthly job growth equals as least 200,000 between now and then. McBride said, “Waiting too long leaves the Fed with insufficient tools to combat the next economic slowdown or recession”.


So, what will the Fed do this year? The Fed was silent on risks at the last two meetings.

The Fed Delays Rate Hike Once More as Meeting Results Meet Expectations