US Central Bank is Expected to Keep Rates Unchanged in August
The US Federal Reserve will hold its policy meeting tomorrow. Analysts do not expect any changes in the monetary policy, but solid economic growth combined with rising inflation are likely keep it on track for another two hikes this year. The upcoming FOMC meeting aims at preparing the market for another +25 bps rate hike in September.
The US central bank has increased borrowing costs in March and June, and investors see additional moves in September and December. Policymakers have raised rates seven times since December 2015.
The first estimate of US GDP growth soared to an annualized +4.1% q/q in 2Q18, thanks to the strength in private consumption (+4%) and government spending (+3.5%). Business investment grew +5.4%, moderating from +8% in the first quarter, while net exports improved.
Headline inflation improved further to +2.9% y/y in June, from +2.8% a month ago. Core CPI also accelerated to +2.3%, the largest rise since January 2017, from +2.2% in May. PCE, Fed’s preferred inflation estimate, would likely stay around the +2% target in June. Unemployment rate rose to 4% in June, from 3.9% in May. Still, the market anticipates it to return to 3.9% in July.