The Strategist

A hike in U.S interest rates is a distant possibility.

07/31/2015 - 04:52

An analyses of the statements coming out of the Federal Reserve show that policy makers are worried about a downturn than inflation and if the momentum of the 2nd quarter results are maintained, a hike in interest rates is very much on the table.

The Federal Reserve said announced that with the job market and burgeoning U.S economy continuing to strengthen a possible interest rate hike is likely to take place in September when the central bank’s policymakers are likely to meet.
Having emerged from their two-day policy meeting, officials from the Federal Reserve said that the economy has crossed the hurdles of the first quarter; it is now "expanding moderately" despite headwinds from overseas and the downturn of the energy sector. The recent months, have been particularly impressive as the U.S economy had made "solid job gains".
"On balance, a range of labor market indicators suggest that underutilization of labor resources has diminished since early this year," said a statement from the Federal Reserve that kept the key interest rates unchanged, for now.
Those with a keen eye for details would have observed that small changes in the statement along with the language that has been used, marks a definite upgrade of the U.S economy in their eyes. The slack in the labor market, it said, had "diminished somewhat."
However, the Federal Reserve has said, it needs to see some more definitive improvement in the labor market, to which analysts say are a pointer to continuing gains in the U.S job market.
"They slightly lowered the hurdle for a rate hike by adding the word 'some' to their conditions required for further improvement in the labor market," opined Shyam Rajan, who heads the U.S. interest rate strategy at Bank of America, Merrill Lynch.
Although the statements coming out of the Federal Reserve may have ramped up expectations, it however did not give a clear sign of its plans. Besides improvements in the labor market, the Federal Reserve also wanted to see progress made to keep inflationary pressures at check.
Its statements saw the rise of U.S stocks as well as the strength of the dollar in comparison to other currencies. However, U.S treasury prices were unmoved.
A careful analyses of the statement let out by the Federal Reserve will show economic risks are "nearly balanced," which suggests that it is more concerned about a possible downturn than inflationary pressures.
"The Fed is taking baby steps towards a rate hike. Enough improvements have been made in the labor market that the Fed only needs a little more confirming evidence to say it is time," said the chief portfolio strategist at Wells Fargo Funds Management, Brian Jacobsen.

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