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Federal Reserve leaves option open on timing of 1st interest-rate hike
The Federal Reserve was slightly more upbeat about the economy on Wednesday, leaving its options open for an interest-rate hike at one of the three meetings left this year.
By making subtle changes to the six-paragraph policy statement, “the Fed did just enough to preserve the option to hike rates at the September meeting,” said Eric Green, head of rates and economic research at TD Securities.
The decision by the Fed’s policy-making committee was widely expected. The U.S. central bank left its key rate in a range of 0% to 0.25%, where it has been since the depths of the Great Recession more than six years ago.
Fed officials have demonstrated a clear appetite to hike rates at least once this year, especially given the improvement in the labor market. Fed Chairwoman Janet Yellen told Congress earlier this month that the economy “can not only tolerate but needs higher rates.”
But the timing of any move remains unclear.
Treasury prices TMUBMUSD10Y, +1.18% fell while the dollar DXY, +0.07% strengthened after the statement was released at 2 p.m. Eastern Time. Stocks DJIA, +0.69% gyrated.
Many economists think the Fed will move in September — if the economy stays on the upswing. Others think the Fed may wait until December. Only a few think the central bank will wait until 2016.
In a statement, the most important wording change was that the Fed said it needed only “some” further improvement to hike rates. Previously, the U.S. central bank had said it needed to see improvement.
“That change suggests that officials only need to see a little more improvement,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.
“Two more employment reports will be released by then; they could easily show ‘some’ further improvement,” he added.
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