U.S. Fed holds rate steady amidst strong economic data

August 1, 2018 Edward Golding

 

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Today, members of the Federal Open Market Committee voted unanimously to hold the target range of the federal funds rate steady at 1.75% to 2.00%. Interest rates remain accommodative in the midst of strong labour market data and solid growth in economic activity.

In its announcement, the Fed pointed out that “economic activity has been rising at a strong rate” driven in part by growth in both household spending and business investment. At the same time, inflation remains on target, with overall inflation and inflation minus food and energy remaining near 2%, in line with expectations.

The Fed remains on track for further, gradual interest rate increases in line with sustained economic expansion and strong labour markets, so long as inflation remains near the 2% target range. Risks to the economic outlook appear to be “roughly balanced” and the timing and size of future rate adjustments will be based on realized and expected economic conditions relative to the Fed’s maximum employment and 2% inflation objectives going forward.

While the Fed was largely expected to hold the rate steady, both the S&P 500 and U.S. bond yields dropped slightly in the wake of the announcement, with the equity index recovering shortly after. The U.S. dollar also moved slightly lower relative to the Canadian dollar and most other major currencies following the announcement.

About the Author

Edward Golding

Edward Golding, CFA, MBA, is an Assistant Vice President with the Investment Management and Strategy team at MD Financial Management. He oversees the Canadian, Dividend and U.S. equity mutual funds and investment pools at the firm.

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