U.S Economy On course

The Federal increased interest rates on Wednesday by a quarter of a percent and signalled that the U.S. economy would benefit from three more years of growth.

The positivity was backed up with plans that the U.S. central bank are confident of another rate hike in December, three more during 2019, and one increase in 2020. Should they go ahead, this would push the overnight lending rate to 3.4 percent, which is roughly a half of a percentage point above the “neutral” interest rate, which doens't  stimulate nor restrict the economy.

The focus from the markets was on whether the Fed would remove the word ‘accommodative’ regarding the monetary policy, which was in fact the case, which indicates that the monetary policy is becoming less accommodative and heading towards a neutral rate. However, Fed Chairman Jerome Powell commented that the removal of the word does not necessarily mean a policy outlook change, instead, it is a sign that policy is proceeding in line with expectations.

The Fed views the economy growing at a faster than expected 3.1 percent for the year and continuing to expand moderately for at least three more years, following sustained low unemployment and stable inflation near its 2 percent target, with the labour market strength continuing and economic activity rising at a strong rate.

Inflation was forecast to remain near 2 percent over the next three years, while the unemployment rate is expected to fall to 3.5 percent next year and remain at the same rate throughout 2020 before rising slightly in 2021. The jobless rate is currently 3.9 percent.

As the FOMC meeting was more or less in-line with the markets expectations, there was very little impact. However any changes in unemployment, wages and economic activity could possible see the Fed change their minds for a December hike, however it's highly unlikely according to the current data. Employment data for September will be released on October 5th and will be in focus as the markets look for further indications.

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