3. Fed keeps door open for September rate hike
Fed keeps door open for September rate hike

Fed keeps door open for September rate hike

The bank's new wording opens the option for a rate hike at its Sept. 20-21 meeting


Although keeping interest rates unchanged after its July meeting, the Federal Reserve used new language keeping the door open for a rate hike in September, experts told Anadolu Agency on Thursday.

After the conclusion of its two-day meeting Wednesday, the Federal Open Market Committee (FOMC) added new wording to its July statement, stating that "near-term risks to the economic outlook have diminished."

The new wording was viewed by some experts as a signal that the Fed could raise interest rate at its meeting on Sept. 20-21.

"The language used does differ from 'the balance of risk assessment' that had been a staple in statements until recently," said Ryan Sweet, director at Moody's Analytics.

"It appears that the Fed’s more confident that the economy will perform as expected in the near term," he said. "The Fed wants to keep its options open [for September]."

In its statement Wednesday, the central bank underlined strengthening labor market conditions, modest expansion in economic activity, and strong growth in household spending, which carried a more upbeat view of the U.S. economy than previous statements.

"The new statement is quite a turnaround since the last meeting in mid-June," said Paul Ashworth, chief U.S. economist at Capital Economics.

"The language added to today's statement is a clear indication that a September rate hike might be coming," he added.

Ashworth emphasized that the strong return of June employment growth also "appears to have satisfied the majority of Fed officials."

The U.S. labor market data was strong as the economy added 287,000 new jobs in June, both beating market forecasts, and showing that the low 11,000 jobs added in May was a temporary hiccup.

- Risks remain until September

However, there is still much to be watched in the economy and financial markets between now and September that could be perceived as risks by the Fed.

"The Fed has arguably become too sensitive to financial market conditions," Sweet said, and added, "It will be problematic if the job market tightens."

Although the U.S. stock market has closed with gains for four weeks in a row, Wall Street was on its toes this week with the Fed decision looming, and thus has been posting mixed closings in the first three days of trading.

Meanwhile, the focus has shifted to this Friday's second quarter GDP number, and next week's data on personal spending and non-farm payrolls.

"We don’t anticipate any marked downturn in the incoming economic data," Ashworth said.

"We still expect the Fed to raise rates at least once and probably twice this year... the odds of a September rate hike are far higher than the 30 percent probability that is currently priced into futures markets," he added.

Sweet said if the economy performs as expected, "tighter monetary policy this year will be warranted."

But, he stressed that the minutes of the July meeting, which will be published in three weeks, will provide more information about how much support there was among the FOMC voting members for a rate hike in September.

The Fed's previous rate hike came last December -- the first in almost a decade. Since then, the FOMC has pointed to risks in global financial markets, economic turmoil around the world, and weaknesses in the U.S. economy, which resulted in dodging a rate hike in all of five meetings so far this year.