The Federal Reserve stayed on course for a further escalation in short-term interest rates as early as next month as it emphasized the health of America’s economic expansion alongside inflation that is hovering close to target. The US central bank held the target range for the federal funds rate at 1.75 to 2 percent, as generally expected by economists, in a unanimous decision by its policymakers.
The Fed made a compelling assessment of the economy following its latest two-day meeting, describing a range of economic indicators as “strong”. The Fed was an early mover in pulling back its post-crisis stimulus, but it has been joined by other major central banks: the European Central Bank is signalling in an end to its quantitative easing programme at the end of the year, while the Bank of England is contemplating another rate increase.
The Bank of Japan stood as the anomaly this week, pledging to maintain extremely low rates, although it also jolted bond traders by bringing in extra flexibility into its stimulus programme.
In its post-meeting announcement, the Fed described US activity growth as coming in at a “strong rate” and judged that household spending and investment had “grown strongly”. Job gains had also been “strong”, it added. “On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent,” it said. The statement leaves the path open to a further rate rise at its next meeting on September 25-26, as officials stick to their longstanding guidance that further rate rises will come gradually.
Written by Scherzando Karasu, External Financial Journalist
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