The US Fed yesterday kept its target range on hold at 0.25%-0.5%. The Fed removed ‘global economic and financial developments continue to pose risks’ from its statement that it had included in March’s statement. In its April meeting’s statement, the Fed said it now keeps a close watch on inflation indicators and global financial and economic developments. This indicates that the Fed acknowledges that financial stress has alleviated and that China has stabilized. It has removed the word ‘risks’ from its statement.
However, the US Fed’s statement was just a tad more hawkish than the March’s statement. The Fed continues to be concerned, but not much, said Danske Bank. Meanwhile, the central bank believes the subdued Q1 economic growth to be transitory. The Fed stated that the private consumption growth moderated in spite of strong real income growth and higher consumer sentiment. It confirmed that the labor market continues to bolster in spite of weak growth.
Meanwhile, a rate hike in June cannot be ruled out totally as the Fed removed ‘global economic and financial developments continue to pose risks’, noted Danske Bank. But the central bank has lost the chance to get the markets ready beforehand that it might hike rates in June. This might signify that the Fed is unlikely to hike in June, added Danske Bank.
The US Fed is expected to keep rates on hold until September and raise it just once in 2016, according to Danske Bank. The central bank in not likely to risk tightening too much too soon and would rather delay the hike than tightening too early, noted Danske Bank. Most of the voting FOMC members are tilted towards a dovish stance. Moreover, Fed chair Janet Yellen has highlighted that risks are on the downside to the US economy in her recent speech. The Fed’s meeting minutes are expected to indicate that the committee members had strong discussion.
