US Interest Rates: Slowdown Scuppers Chance of July Rate Rise

Weak employment data at home and economic uncertainty overseas has slowed the Fed’s approach to ‘normalising’ interest rates

BlackRock 17 June, 2016 | 10:54AM
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Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, Rick Rieder,chief investment officers of Global Fixed Income at BlackRock looks at this week’s interest rate decision in the US

There were three key points to take from this week’s announcement and press conference by the Federal Reserve’s Federal Open Market Committee (FOMC), following it decision to keep interest rates on hold in the US, within a range of 0.25% and 0.5%.

  • The FOMC  delivered a statement that described a more dovish path to further normalizing interest rates, as the central bank kept the door open for a possible July rate hike, but kept it barely ajar. The Fed will almost definitely not have an opportunity to move until at least the September meeting.
  • On labour markets, for a variety of reasons we think it’s likely that labour market growth remains slow in the back half of the year, as an already tight jobs market, weakening corporate earnings, and policy-inspired wage hikes are likely to combine to moderate growth.
  • Beyond its concern over slowing labor market growth and low inflation, the Fed is understandably concerned with risks from abroad, so keeping a close eye on moves in the USD and global financial conditions, such as those in China, will be important for understanding the timing of any Fed move, as will the near-term path of hiring after May’s weak payroll report.

 

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BlackRock  has assets under management totalling $3.8 trillion across equity, fixed income, cash management, alternative investment, real estate and advisory strategies (as at 31 December, 2012).

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