The chances of a rise in US interest rates in December firmed this morning after the Federal Reserve left interest rates unchanged and changed its stance on future increases.
The US central bank said risks to the US economy have eased and the labour market is getting tighter, suggesting the chances of a rate rise happening after the November elections have increased.
But some analysts reckon the Fed could move in September, ahead of the poll, but more experienced watchers of the Fed doubt that it will do anything so close to the November 8 elections.
The Fed’s comments saw Wall Street ended lower – except for Nasdaq which closed at yet another 2016 high as investors chased Apple shares higher in the wake of its solid (but lower) quarterly figures.
The US dollar was a touch stronger, but the Aussie dollar traded around 74.80 US cents, and the overnight ASX 200 futures market was showing a modest 9 point rise for the physical market later today.
“Near-term risks to the economic outlook have diminished,” the Federal Open Market Committee said in a statement published this morning (Sydney time) in Washington after its two-day meeting. It repeated language from its June statement that the panel “continues to closely monitor” inflation and global developments.
The Fed said job gains were “strong” in June and indicators “point to some increase in labour utilisation in recent months.” Analysts said the fallout from the Brexit vote seems to be easing.
And the Fed noted that since its June meeting data indicates “that the labour market strengthened and that economic activity has been expanding at a moderate rate,” the Fed said. US analysts pointed out the statement contained three references to recent improvement in the labour market.
The central bank left its target range for the benchmark federal funds rate at 0.25% to 0.5%, where it’s been since the quarter-point increase last December that ended seven years of near-zero rates.
Household spending “ as been growing strongly,” while business investment “ has been soft,” the Fed said in its post meeting statement. The Fed again expressed confidence that it expects inflation to rise to its 2% target over the medium term.
Attention now turns to Friday night’s first estimate of US second quarter GDP, which is expected to show a healthy rebound from the previous quarter of up to 2.6% (The first estimate is usually revised in the second and third estimates, as first quarter growth was).
The July jobs report is out a week tomorrow night, Sydney time and three weeks Fed Chair Janet Yellen speaks at the annual central banking conference in Jackson Hole, Wyoming – a venue where Fed chairs have often used to signal policy changes or to reinforce current policy stances.
