The US monetary watchdogs left the key rate corridor unchanged at 1.00% to 1.25% at yesterday’s meeting, which came as no surprise to anyone. However, the statements made about the rate decision were changed somewhat compared to the last FOMC meeting and Yellen’s hearing before the US Congress in June. While the previous wording was that the program for the normalization of the central bank’s balance sheet would be implemented “this year”, the representatives of the Fed now hold out the prospect of an “early start.” The representatives of the Fed’s Board of Governors assume here that the US economy will continue to develop in line with their expectations. Basically, the monetary watchdogs continue to expect moderate economic growth and further improvements in the US jobs market. The members of the FOMC regard the short-term risks for the economic outlook as balanced. With regard to the development of inflation, the top dogs at the central bank expect comparatively weak price buoyancy in the short term. But in the medium term US inflation should come near to the Fed’s 2% inflation target. The decision on the monetary policy orientation was taken unanimously by the Fed representatives.
The latest Fed decision has not unleashed any excessive reactions in the financial markets. The market had already been expecting this minor adjustment to the press statement. Under the impression of the latest Fed statement we believe that the Fed will take a break in September from the recent quarterly cycle of interest-rate hikes. If the unemployment rate remains below its natural level, then the Fed is likely to follow up with the next key rate hike in December, even before the inflation trend would justify such a step. The top dogs at the Fed are likely to fire the starting shot for the balance sheet normalization, which also has a restrictive effect, in September, as long as reaching the US debt ceiling does not cause too much of a stir at this time. At the press conference following this FOMC meeting, Fed Chair Yellen will be able to explain the motivation for the decision, whereby she could also already release further details in advance at the end of August in Jackson Hole.