US Fed moves closer to rate rise

The Federal Reserve

The US Federal Reserve has indicated it is more positive on the US economy, confirming views it is likely to raise interest rates this year.

The US central bank said it had unanimously agreed to keep rates at close to zero this month, but believed the economy was on a stronger footing.

“Economic activity has been expanding moderately in recent months,” it said in a statement.

But it still did not give a clear indication of when rates would rise.

In its statement, the Fed noted that the job market, housing and consumer spending had all improved.

The central bank’s policy makers also said they expected inflation to rise gradually toward its 2% target.

On employment – which is now at a seven-year low of 5.3% – the bank said job gains had been “solid”, more positive language than last month.

But it again reiterated that it would only hike its benchmark interest rate “when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective”.

Fed chair Janet Yellen has emphasised that any increase in the interest rate will be gradual

‘Baby steps’

The Fed’s decision to keep its main interest rate on hold this month had been widely expected.

“The bottom line is they didn’t do a lot.

“But they’ve nudged the market in the direction of a 2015 rate hike. And it’s increased our confidence in a September rate hike,” Millan Mulraine, deputy head of US strategy at TD Securities told the BBC.

Barclays economist Michael Gapen said that he also still expected a rate rise in September, which he said remained the bank’s “baseline forecast”

And Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds, said the statement confirmed the Fed was “taking baby steps” towards an increase.

September likely

The interest rate has now been at a record low for six and a half years.

The US central bank’s decision to cut the rate to such a low level in December 2008 was aimed at boosting growth in the economy amid the global financial crisis.

Most analysts expect the first hike in September, but Federal Reserve chair Janet Yellen has emphasised that any increase will be determined by the latest economic data.

She has also said that when rates do begin to rise, the increase will only be gradual.

US stock markets, which were up ahead of the Fed’s decision, continued to trade higher after the decision.

What Next?

Recent Articles

Leave a Reply

You must be Logged in to post comment.