NEW YORK, Aug. 17 (UPI) — The Federal Reserve’s decision three weeks ago to leave benchmark interest rates alone for the time being had a ripple effect that sparked a mini rally on Wall Street Wednesday.
The U.S. central bank released its minutes report Wednesday for the July 27 meeting, at which the Federal Open Market Committee decided that domestic economic signals — particularly inflation, a key indicator — didn’t appear to warrant a rate hike.
“Inflation has continued to run below the Committee’s 2 percent longer-run objective,” the Board of Governors for the Federal Reserve System said in the minutes.
“Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent.”
The Fed has yet to raise key interest rates in 2016, despite expectations stated by the FOMC months ago that hikes were likely coming. A number of factors, though, have interfered with those previous forecasts — including labor statistics and Britain’s surprise exit from the European Union in June.
“The Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation,” the Fed said in the minutes. “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
A domestic inflation rate of 2 percent typically suggests a robust economy, but that figure has remained below that threshold for the first seven months of 2016.
The Fed hasn’t raised the federal funds rate since December, when it climbed from near zero to its current level of 1/4 to 1/2 percent. That rate hike was the bank’s first since the financial crisis in 2009.
In its minutes, the Federal Reserve again said that at least one rate increase will likely occur before the end of the year, perhaps at its next two-day meeting on Sept. 20-21.
Nine of the FOMC’s 10 menbers, including chair Janet Yellen, voted to leave rates alone. Just one, Esther L. George, favored raising the target range for the federal funds rate to 1/2 to 3/4 percent.
U.S. indices climbed slightly as the Fed’s latest report spurred a small spike. The Dow Jones Industrial Average erased modest losses earlier by rising 22 points to close Wednesday at 15,574. The S&P 500 jumped 4 points to 2,182 and the Nasdaq composite finished up two points to 5,228.
The U.S. dollar weakened slightly, less than 0.1 percent, immediately after the minutes were released, erasing a gain earlier Wednesday of about 0.3 percent. The value of the dollar fell sharply on Tuesday.
FOMC minutes (7/27/2016)
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