The Fed’s next step

US Federal Reserve’s latest assessment has opened up possibility of another rate hike as near-term risks have declined and US economy is expanding at a moderate pace


Janet Yellen, chair of the US Federal Reserve. Photo: Bloomberg
Janet Yellen, chair of the US Federal Reserve. Photo: Bloomberg

The US Federal Reserve’s latest assessment has opened up the possibility of another rate hike. It says near-term risks have declined and US economic activity is expanding at a moderate pace. Some market participants now believe that the second rate hike in nearly a decade could come as early as September. The Fed will perhaps be better placed to move forward on the policy normalization path in September as political developments due to the impending US presidential election later in the year and its impact on financial markets could complicate policy choices.

It will also be closely watching other central banks and developments in international markets. Japanese Prime Minister Shinzo Abe has announced a new fiscal stimulus package and has effectively put the onus on the Bank of Japan (BoJ), which will end its two-day meeting on Friday, to do more to support economic activity and prices. Policymakers and markets would be keenly watching BoJ’s decision.

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