The July meeting of the U.S. Fed’s Open Market Committee (FOMC) was expected to keep the federal funds rate range unchanged at between 1.00% and 1.25%. Markets were also on the lookout for some insight into the Fed’s plan to reduce its balance sheet which had been increased by a factor of five since 2009.
The FOMC left the federal funds rate unchanged, as expected, “in view of realized (sic) and expected labor (sic) market conditions and inflation”. The statement regarding inflation running below 2% as opposed to “somewhat below 2%” drew some comments but the observation of the difference represents a tweak rather than something fundamental.
On the second point, its statement regarding the beginning of reducing its balance sheet changed from “this year” to “relatively soon” but the statement was essentially the same, “provided that the economy evolves broadly as anticipated.”
Westpac’s Imre Speizer said the statement suggested the FOMC had “some concern the weakening (of inflation) will be more long lasting”. In conjunction with the Fed’s plan to normalise its balance sheet” “relatively soon”, he said the statement ruled out September’s meeting for a rate rise.