Fed clears paths for possible September rate hike

US policy makers give support on strengthening economy, signalling first rate hike in almost a decade

Photo by: AP
Photo by: AP

The Federal Reserve on Wednesday held interest rates at current near zero levels on Wednesday thus described the US economy as expanding “moderately.” Being highly data dependant, the central bank noted that a rise in interest rates may be feasible in September. 

A key driver for the positive outlook was the "solid job gains" seen in the recent months.

"On balance, a range of labor market indicators suggest that underutilization of labor resources has diminished since early this year," said the central bank in a policy statement. 

However, the Fed did not show transparency on the exact timing of the anticipated rate hike. 

Policy makers believe there is still room for improvement in inflation, as it is expected to rise to the 2 percent medium-term target.

For several months, the bank has been asserting that once data comes in strong enough, rates will be hiked. This has become an important topic for discussion by analysts since the last time an event as such occurred was when the recession began in December 2008. 

The Fed’s stance will become visible within the next two weeks as important indicators signaling economic and job growth will be announced. 

Meanwhile, managing director of the International Monetary Fund Christine Lagarde stated that the world economy is recovering but it still remains fragile as it "faces some downside risks."

She also warned that a fall in global commodity prices will likely weigh down emerging market economies. Broadly speaking, she warned that the global economy could be hurt if the bank raises interest rates sooner than expected. Earlier this month Lagarde said that "more tangible signs of wage or price inflation” was need before implementing such a decision. 

TRTWorld and agencies