Fed signals rate hikes to come but depend on data, dollar falls

The Federal Reserve’s Open Market Committee completed a two day meeting on Wednesday and released a statement on monetary policy and forecasts for the US economy.

As expected, the Fed left its target range for the Fed funds rate at zero to 0.25 per cent, and it has stayed at these historic lows since 2008. In its commentary on economic conditions, the Fed said there were signs that the US economy had regained some momentum following a dismal start to 2015 and said the economy was “expanding moderately” following the first-quarter setback. The Fed had a slightly more upbeat tone on jobs and household spending.

The Fed did signal to the markets that short-term interest rates will be raised later this year, based on its so-called “dot-plot” projections which show the FOMC policy makers’ expectations for interest rates at various points in the near-future. The dot-plot showed that all but two policy makers expected the first rate rise since 2006 to happen this year.

During a press conference, Fed Chair Janet Yellen said that the Fed is waiting for ‘more decisive data’ before hiking. So rate rises are still very data-dependent. She said the conditions in the labor market and for inflation did not yet warrant an increase in rates.

The dollar tumbled on Yellen’s comments and fell across the board. USD/JPY had climbed to 124.43 ahead of the FOMC statement release and dropped to 123.20 after the statement. The pair continued lower into early Asian session trading on Thursday to reach 123.05.

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