Fed rate hikes are not far away

In the meeting that everyone had been waiting for, the Federal Reserve left its policy rate on hold. The decision was not an easy one. One the one hand, the improvement in the unemployment rate and broader economy argued for a hike, but on the other, limited inflation and tightening financial conditions supported the decision to wait. 

"We expect the balance to continue to shift toward rate hikes. As we have outlined, the domestic economy has the strength to withstand the external headwinds to growth", notes TD Economics.

With continued job growth and labor market tightening, wages will pick up and inflation will follow. While the pace of tightening will be gradual and the end point is likely to be much lower than it has been historically, the process is likely to begin before long. As Janet Yellen has commented, further improvement in the labor market will serve to bolster the Fed's confidence that inflation will return to its 2% target.