July 27, 2016
2016 FOMC Meeting
By Joel Naroff, President and Chief Economist, Naroff Economic Advisors.
In a Nutshell: "Near-term risks to the economic outlook have diminished."
Rate Decision: Fed funds rate range maintained at 0.25% to 0.50%
The "data driven" Federal Open Market Committee met again and was driven by the data. Since the numbers were better between the June meeting and today, the Committee determined that the economy was getting better – again. Not a surprise. One thing this group has been consistent about is its "one meeting the sky is falling, the next meeting the sun is coming out" approach to economic analysis. This was the good economy meeting that comes after the worrisome economy meeting.
As for the economy, the members were actually fairly positive about things.They said: "Information received since the Federal Open Market Committee met in June indicates the labor market strengthened and that economic activity has been expanding at a moderate rate. Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months. Household spending has been growing strongly but business fixed investment has been soft." This contrasts with the largely worrisome description of the economy in the June 14-15 meeting. As for Brexit or other international fears that have prevented rate hikes over the past year, the members seem to have said "never mind" and dropped those issues into the factors they are monitoring - which are just about anything that could cause a problem that would provide an excuse to do nothing.
So, what will the Fed do this year? This statement was positive on the economy and pessimistic about, well, nothing. By saying that the "near-term risks to the economic outlook have diminished", the members have opened the door, once again, to a rate hike. There are two more employment reports between now and the September meeting. We get second quarter GDP this week, but that was last quarter and the members will need to see solid third quarter growth as well. So, while it is likely the economy will be strong enough for the Fed to raise rates in September, it is hard, right now, to predict that.
Today's statement seems to indicate we should get at least one increase this year. If that doesn't come in September, then the December meeting is likely since the November meeting is one week before the election. How a rate hike would help or hurt either candidate is beyond my comprehension (if you can figure it out, please tell me), but this Fed takes no chances on anything.
The next FOMC meeting is September 20-21, 2016.
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