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As expected, the policymakers at FOMC kept interest rates unchanged at yesterday’s meeting. Current Federal funds rate target 175-200 basis points.
Let’s first assess the bias in monetary policy statement –
- Improvement in the labor market continues to strengthen, economic activity rising at a strong rate. (Hawkish bias)
- Job gains have been strong in recent months, and the unemployment rate declining. (Hawkish bias)
- Growth rates of household spending and business investments have grown strongly. (Hawkish bias)
- Inflation both including and excluding energy and food remains near 2 percent. Indicators of longer-term inflation measure little changed, on balance. (Neutral bias)
- FOMC expects a sustained expansion of the economy and strong labor markets. Expects further gradual rate increase. (Hawkish bias)
- Fed is closely monitoring the global economic and financial developments as well as measures of inflation. (Neutral bias)
The statement remains as hawkish as the previous statement, which means that FOMC will continue to increase twice more this year. The next hike is now price in September with 91.2 percent probability and the fourth rate hike is priced in December, with 67.6 percent probability.
