Fed Keeps Key Interest Rate Steady 07/27 13:15
The Federal Reserve is keeping interest rates unchanged while noting that
near-term risks to the economy have diminished.
WASHINGTON (AP) -- The Federal Reserve is keeping interest rates unchanged
while noting that near-term risks to the economy have diminished.
The Fed said Wednesday that the U.S. job market has rebounded, with strong
job gains in June after a slump in May. But it said in a statement after its
latest policy meeting that it still plans to monitor global economic threats
and financial developments to ensure that they don't slow the economy.
The central bank gave no hint of when it might resume the rate hikes it
began in December, when it raised its benchmark rate from a record low.
Some economists think a hike is possible in September, if hiring remains
solid and the turbulence that followed Britain's vote to leave the European
Union continues to stabilize.
The decision to leave its key rate unchanged in a range of 0.25 percent to
0.5 percent was approved on a 9-1 vote. Esther George, the president of the
Fed's Kansas City regional bank, dissented for the third time this year,
arguing for an immediate quarter-point rate hike.
The more positive tone in this statement, compared with the previous
statement in April, will likely raise expectations that the central bank could
be ready to boost rates at it September meeting if the economy keeps improving.
"Near-term risks to the economic outlook have diminished," the Fed said.
But it repeated a previous pledge to "continue to closely monitor inflation
indicators and global economic and financial developments."
A few months ago, it was widely assumed that the Fed would have resumed
raising rates by now. But that was before the U.S. government issued the bleak
May jobs report and Britain's vote last month to quit the EU triggered a brief
investor panic. Since then, though, a resurgent U.S. economy, the bounce-back
in hiring and record highs for stocks have led many economists to predict a Fed
move by December if not sooner.
In June, employers added 287,000 jobs, the most since October 2015. But
uncertainty about the global economic consequences of Britain's exit from the
In December, when the Fed raised its benchmark rate from a record low near
zero, it also laid out a timetable for up to four additional rate hikes this
year. But as 2016 began, intensified fears about China's economy and a plunge
in oil prices sent markets sinking and led the Fed to delay further action.
Once the markets stabilized, the Fed signaled a likely rate increase by
midyear. Anemic hiring in April and May, though, raised concerns, and it left
rates alone. The central bank was also affected by Britain's forthcoming vote
on whether to leave the EU, anticipation of which had rattled investors.
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. Now, though, the pendulum has swung back, especially after the arrival
of a reassuring June jobs report. The Standard & Poor's 500 stock index had
plunged 5.3 percent in the two trading days after Britain's vote. It has since
regained all those losses --- and set new highs.
The economy is also picking up after the year's anemic start. Stronger
consumer spending is thought to have lifted growth, as measured by the gross
domestic product from the January-March quarter to the April-June quarter, with
further acceleration expected later this year. In the spring, consumers boosted
spending at the fastest pace in a decade. Economists also foresee a lift from
business investment, reflecting a rebound from cutbacks in the energy sector.
All that strength might argue for September rate hike, especially if monthly
job growth equals as least 200,000 between now and then. Still, the risks of
raising rates again too soon and possibly choking off economic activity may
seem greater to the Fed than the risks of waiting longer. It has room to
accelerate its rate increases if the economy were to heat up so much as to
ignite high inflation.
Before Wednesday's statement was issued, according to data from the CME
Group, investors foresaw only about a 27 percent probability of a Fed rate hike
by September and about a 52 percent chance by December.