Federal Reserve holds key US rate unchanged
Washington, July 30
The Federal Reserve kept its benchmark federal funds interest rate unchanged at near-zero per cent as expected on Wednesday, providing no fresh hints on when a long-awaited rate rise might come.
The Federal Open Market Committee (FOMC) said the US economy had expanded ‘moderately’ in recent months and the jobs market had strengthened, but noted continued ‘soft’ business investment and exports.
It also said that inflation remained softer than monetary policymakers want to see, though noting that much of the weakness is related to the plunge in energy prices over the past year and to cheaper imports, thanks to the strong dollar.
But the FOMC’s brief policy statement, at the end of a two-day meeting, gave no fresh sign of their thinking on when they will embark on an expected series of rate increases.
Minor changes in the language of the statement showed only that ‘the past six weeks data pushed the FOMC a little closer to raising rates’, said Economist Chris Low of FTN Financial.
“But they are still waiting for more good news before they actually pull the trigger,” he said.
The fed funds rate has been held at zero to 0.25 per cent since late 2008 to help bring the US economy back from deep recession, and Fed Chair Janet Yellen has said twice this month that she expects a rate hike will come by the end of the year.
An increase was not expected at this week’s meeting, but some thought the panel might tip its hand in the coming months by changing some of the language in the statement.
Instead, the Fed has made clear it will wait to see what the two monthly employment reports and other various data updates show before its next meeting, on September 16 to 17.
Despite some calls to hold off until 2016, FOMC members appear anxious to break the ice with the first increase, even as they assure markets that increases after that are likely to come in slow steps.
Key data has recently been closer to what the Fed said it wants to see to ‘normalise’ monetary policy after years of easy money.
The unemployment rate fell to 5.3 per cent in June, from 10 per cent at the 2009 peak.
Inflation, as measured by core consumer prices, picked up to 1.8 per cent in June year-over-year, nearing the FOMC target of around two per cent.
But another measure that the Fed focuses more on, the PCE price index, remains much lower, up only 0.2 per cent year-on-year in May.