Fed Leaves Rates Unchanged

Date: July 28, 2016

Policymakers Suggest Economy Showing Signs Of Improvement, However

On Wednesday, the Fed concluded its July Federal Open Market Committee meeting and issued a policy statement explaining that while the central bank chose to hold rates steady this month, near-term economic risks “have diminished,” jobs data is stronger, and economic growth remains “moderate.” Though there was no explicit mention of when rates might increase, the statement left open the door to the resumption of rate hikes later this year. The Wall Street Journal reports the Fed upgraded its assessment of the US economy’s performance, saying that “near-term risks to the economic outlook have diminished.” Nine of 10 members of the FOMC voted to leave rates unchanged, but the central bank offered a more upbeat description of the labor market, household spending, and economic activity. CNBC adds that the only dissent came from Kansas City Fed President Esther George, “who continued to push for a quarter-point hike.” While USA Today says the Fed “gave no clear signal about its upcoming plans” for a rate hike, Bank of the West chief economist Scott Anderson is quoted as saying the Fed’s statement indicates that there could be a rate hike in September if it sees “further upside surprises on US jobs and economic growth, an improved global outlook, and more signs that inflation expectations are starting to normalize.” According to Bloomberg News, the Fed’s acknowledgment of “recent domestic economic strength alerts market participants to increasing policy maker optimism, yet it also leaves the Fed room to defer a hike should inflation fail to materialize, global risks intensify or U.S. indicators slump.” In an analysis, Bloomberg News says Reserve Chair Janet Yellen “is defining her term…with a cautious policy aimed at steering the economy through domestic headwinds such as tight credit and low productivity gains as well as global shocks.” The “unexpectedly long pause” in rate hikes suggests Yellen is “waiting for overwhelming evidence of a strong economy and for international risks to subside.”

What This Means For Small Businesses

Economic uncertainty is weighing heavily on small businesses. In the NFIB’s latest Small Business Economic Trends report, which showed small business optimism still below historic pre-recession levels, NFIB Chief Economist Bill Dunkelberg said, “Small businesses are in maintenance mode experiencing little growth.” The Fed at its latest policy meeting had an opportunity to ease market uncertainty by increasing rates, but instead chose to maintain the status quo, leaving rates unchanged. This is not the way to inspire confidence among America’s job creators.

Additional Reading

The AP and Reuters were among additional outlets covering the latest Fed policy meeting.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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