Fed keeps rates unchanged; says risks to economic outlook have diminished

The Federal Reserve, as expected, left interest rate unchanged at 0.25 - 0.50%. From the previous meeting, the central bank sounded a little more optimistic and mentioned that “near-term risk to the economic outlook have diminished”. There was one dissenter, Esther L. George. She preferred a rate hike of 25bp at this meeting. At the June meeting, the decision was unanimous.

Greenback rose in the market after the decision particulate against commodity currencies; versus European currencies, it rose but then reversed the trend.

Changes from the previous meeting

Most changes in the statement were in the first paragraph, where the Fed indicated that “the labor market strengthened and that economic activity has been expanding at a moderate rate. Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months. Household spending has been growing strongly but business fixed investment has been soft.”

Regarding inflation, the Fed repeated the exact same message signaling that it is expected to remain low but noted that “near-term risks to the economic outlook have diminished”. The rest of the statement is the same of the June meeting, with the FOMC committed to keeping its existing policies.

Another relevant change, was the vote of Esther George, “who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent”. She voted for a rate hike during most of 2016 meetings but in June she did not vote for a rate hike. The rest of the FOMC voted for keeping rates at current levels.

The minutes of the meeting will be released August 17 and are likely to show the discussions that took place.