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Fed holds off from rate increase
July 27, 2016, 6:04 pm

The US economy appears upbeat, although sluggish growth is reported at times, and this pressures the Fed to raise interest rates [Xinhua]

The US economy appears upbeat, although sluggish growth is reported at times, and this pressures the Fed to raise interest rates [Xinhua]


Although the latest data from the US Commerce Department points to stabilized consumer confidence and new single-family home sales reaching their highest point since the sub-prime mortgage crisis triggered a global recession in 2008, analysts are warning that the business environment does not yet suggest an interest rate hike this September.

At the conclusion of their two-day meeting, the Federal Reserve Open Market Committee (FOMC) of policymakers kept interest rates steady – no increase – but acknowledged that the most recent economic data showed promising growth.

“Near term risks to the economic outlook have diminished,” the FOMC said adding that economic spending has expanded at a moderate pace. But the FOMC expressed hopes that there would be greater activity in business investment.

A few hours earlier, a Commerce Department report on Wednesday indicated that business investment in the US economy remains slow and uneven.

According to the report, non-defense capital goods orders rose by just 0.2 per cent last month after dropping 0.5 per cent a month earlier.

This has been an area of worry for the Federal Reserve’s policy makers who would like to see sustained data across all sectors of the US economy before dedicating to a rate hike in September.

The FOMC is particularly wary in light of the unease following the UK’s Brexit and last year’s Chinese markets ‘correction’ and yuan devaluation.

The FOMC’s challenge is how to balance the upward momentum of the US economy – even though it may be uneven and sluggish at times – with the global hiccups that can shake international investor confidence.

US economic performance at the beginning of the year – Q1 to Q2 – was disappointing and surprised many that had seen better than expected growth in 2015.

For the past few months, the US economy had been adding an average 143,000 new payroll jobs every month compared to an average above 200,000 for much of 2015.

In mid-June, Fed chief Janet Yellen admitted that recent economic data had been a mixed bag “suggesting our cautious approach to adjusting monetary policy remains appropriate”.

But she called on markets not to be pessimistic about the health of the US economy, particularly after the Labor Department’s lower-than-expected May job reports.

The BRICS Post with inputs from Agencies

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