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Federal Reserve Holds Interest Rates Steady

| August 03, 2016

Following its two day policy meeting in late July, the Federal Reserve Open Market Committee announced that it will hold its target interest rate steady at between 0.25 - 0.50%. The result was not a surprise to Wall Street, which had priced in a very low probability of an interest rate hike in July. But the remainder of the Fed’s statement left plenty to be desired.

First, as expected, the official statement referenced the improvement in US economic data since the last meeting in June. The Fed also referenced the decrease in global economic risks as the potential negative effects of the Brexit vote have declined in recent weeks. 

However, the Fed failed to give much in the way of guidance on the likelihood or timing of future interest rate hikes. Instead, it stuck with its recent message that the path of interest rates will be “data dependent,” meaning the Fed will review economic and financial data to determine future rate policy. Investors have largely ruled out the November meeting for a possible rate hike because it falls just days before the Presidential election. Therefore, the Fed’s lack of guidance will put more emphasis on the September and December meetings. The financial markets are currently pricing in a more than 50% probability of a rate hike in December.