Fed: Major obstacle for any rate hike has been removed - Commerzbank

Bernd Weidensteiner, Research Analyst at Commerzbank, notes that at its meeting last week, the Fed left the key interest rates unchanged, as expected but the statement published after the meeting is much more upbeat than the June statement.

Key Quotes

“Since the last meeting in June, the labour market has strengthened and the Fed expressly mentioned last month’s strong job growth. A major obstacle for any rate hike has therefore presumably been removed. The weak May employment report evidently caused the Fed some concern, but the strong June data and a number of other indicators show that this was probably an outlier.

Another problem, the effect of the Brexit referendum on international financial markets, has likewise abated. The Fed was therefore able to note that the short-term risks for the US economy had decreased. An interest rate rise at the next meeting is thus now possible. Esther George (Kansas City Fed) already voted in favour of a rate move at the meeting this week. The data will ultimately determine the timing of the rate hike. The two employment reports due for publication ahead of the September meeting are therefore more important than the Fed’s choice of words in its statement.”