As expected, the Fed's Open Market Committee (FOMC) left the key interest rate unchanged at its first meeting this year, which was also the last one led by Janet Yellen.
The reduction in the central bank’s balance sheet starting in October is an appropriate step on the path to normalization and comes as no surprise to the markets.
The Fed’s rate hike came as no surprise. Over the past few weeks the central bankers had been priming the markets for the “March move” in unusually clear fashion.
The Fed steered clear of changing key rates in the nervous pre-election environment. But in line with the signals it had already provided in September, it stresses that an increase in the federal funds rate is imminent.
Although the Federal Open Market Committee (FOMC) remained on hold again at yesterday’s meeting, it is sending very clear signals that it is moving towards a rate hike before the end of this year.
The US Fed has persistently indicated that the normalization of monetary policy would be gradual. This strategy takes account of the risks of reacting too late or too early.
US growth looks to have firmed up in the second quarter. The robust assessment of production and new orders in the surprisingly good survey-based indicators for June suggest that the economy is poised to make a buoyant start to the second half of the year.
