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Fed not likely to increase interest rates "until December or later"

Three meetings left this year

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There are only three meetings left this year for the Federal Open Market Committee, and the likelihood they’ll raise interest rates above current levels looks slim, judging by the latest meeting minutes released on Wednesday.

National Association of Federal Credit Unions Chief Economist Curt Long explained that the FOMC minutes continue to reflect divisions within the committee.

“The constant refrain of 'data dependency' from Fed officials loses its meaning when there is no consensus on what the data means, much less which policy course is warranted,” said Long.

“Nevertheless, it seems safe to say that many of the committee’s fears were alleviated with the strong June jobs report and by Brexit’s lack of impact on financial markets,” he said. “With inflationary pressures yet to emerge, the Fed seems happy to play the waiting game as far as rate normalization is concerned.”

Long concluded that as a result, they “anticipate no rate hike until December or later.”

Genworth Mortgage Insurance Chief Economist Tian Liu also noted that today’s release of the FOMC minutes came after the strong job market report in July and diminished volatility in the financial market. 

“We believe the FOMC will continue to pay close attention to incoming economic data, especially the August jobs report.  For the 30-year mortgage rate, the pace of future rate increases is more important than the timing of the next rate increase, and today’s minute does not indicate an acceleration.”  

The minutes did shed some light on the committee’s thoughts surrounding Brexit stating:

Overall, negative sentiment surrounding the Brexit out- come early in the intermeeting period was subsequently alleviated by expectations for greater policy accommodation in some AFEs, some resolution of near-term political uncertainty in the United Kingdom, and positive U.S. economic data releases. Nevertheless, several longer-term global risks related to Brexit remained.

However, the minutes mostly reiterated much of the same information the market already knows.

From the minutes:

With respect to the economic outlook and its implications for monetary policy, members continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market indicators would strengthen.

Directly after the meeting in July, the FOMC announced it choose to keep the federal funds rate between 0.25% and 0.5%, which is the same level as when the Fed originally announced it would raise rates back in December.

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