Fed modestly raises outlook, stays mum on rate hike prospects

July 30 00:40 2015

The Federal Reserve modestly upgraded its economic outlook Wednesday but did not signal whether it intends to raise interest rates in September for the first time in nearly a decade. Some economists have said a more positive appraisal of the economy would at least open the door to an increase in the Fed’s benchmark rate in as little as seven weeks.130130035540-federal-reserve-building-monster

In a statement after a two-day meeting, the Fed’s policymaking committee said it agreed to leave the fed funds rate near zero, as expected, where it has hovered since the 2008 financial crisis. The Fed, however, upgraded its view of the labor market, saying it continued to improve, “with solid job gains and declining unemployment.” The statement added that “the housing sector has shown additional improvement” but that business investment and exports — hobbled by low energy prices and a strong dollar — “stayed soft.”

In a subtle but noteworthy change, the central bank said it will raise rates when it has seen “some further improvement in the labor market.” The June statement simply referred to the need for “further improvement in the labor market.” The tweak suggests the Fed may be closer to hiking rates because it “needs to see less by way of job creation…than it needed to see back in June,” RDQ Economics wrote in a note to clients.

The more upbeat job outlook at least paves the way for a possible Fed move in September and suggests that economic reports over the next seven weeks will be key factors in its decision. To lift rates, the Fed also reiterated that it needs to be “reasonably confident” that inflation will toward its annual 2% target in the medium-term. That has been a more elusive goal. With oil prices falling recently after rebounding earlier this year, the Fed removed its assertion from last month’s statement that “energy prices appear to have stabilized.”

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