The US Federal Reserve on Wednesday highlighted the strength of the US economy and labor markets, a signal indicating that interest rate increases are ahead, even as it held its fire for now.
The Fed’s policy committee said that “economic activity has been rising at a strong rate” since its previous meeting in June as the job market continues to improve.
The Fed once again said it expected to continue “further gradual increases” in the overnight lending rate it charges to banks.
That would remove stimulus from the economy, but is consistent with continued economic growth and job gains while keeping inflation near the Fed’s 2 percent target over the medium term, the statement said.
“If you had any doubts about a rate hike in September, you can put those to bed,” economist Joel Naroff said in a note.
“Given the Fed’s evaluation of current and future growth, rate hikes are likely in September, December and possibly as many as four more next year, unless the economy decelerates sharply,” Naroff said.
The key 10-year US Treasury note hit the 3 percent mark after the decision.
The stock market did not like the statement, with the Dow Jones Industrial Average dropping to its lowest point of the day just after the announcement, but recovering some ground afterward.
The vote to hold rates unchanged for now was unanimous and came after the economy grew 4.1 percent in the second quarter, while inflation has crept to just above 2 percent and wages are beginning to accelerate.
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