Key Points
The Fed kept rates unchanged but the statement had a notably more positive tone.
The labor market has strengthened, inflation is up, global uncertainty has eased, and financial conditions have loosened.
The September FOMC meeting should be considered on the table for a rate hike.
The Federal Open Market Committee (FOMC) held rates steady but noted diminished risks in the U.S. economy and a tighter labor market, highlighting in the accompanying statement “that the labor market strengthened and that economic activity has been expanding at a moderate rate.” This was in contrast to the mention of “weak growth in May”—in reference to the extremely weak May jobs report which helped push the Fed to the sidelines. The Fed also reiterated that it expects inflation to reach its 2% target in the medium term.
There was one dissenter—Kansas City Fed President Esther George, a noted FOMC hawk. After flying into the doves’ den by not dissenting at the June FOMC meeting, she reestablished her penchant for raising rates. Heading into the meeting today, and as you can see in the chart below, there was only a 10% chance of a rate hike at the July meeting. But the likelihood of a rate hike in either September or December has spiked since the Brexit-related plunge.