Meanwhile, the Fed is facing renewed scrutiny in Congress. Several Republican-sponsored bills under consideration would change aspects of Fed governance, require the central bank to provide more regular updates to Capitol Hill and explain its use of unconventional monetary policy.
The Fed cited progress within the U.S. job market, an indication it stays on course to boost rates of interest in September.
Wednesday’s FOMC statement said growth in household spending as been moderate and there was been some growth in the housing sector.
Instead, it has focused on the steady growth in the U.S. job market and on policymakers’ expectations that inflation will eventually rise to the central bank’s medium-term objective of 2 percent.
The dollar shrugged off a report showing that contracts to buy previously owned U.S. homes unexpectedly fell in June, following five months of increases. The few modifications suggested a healthier economy.
Kathy Bostjancic of economic forecasting firm Oxford Economics agreed that Fed officials “only need to see “some” further improvement in the labor market”. At the same time, the greenback got a boost from a favourable assessment of the American labour market by the Federal Open Market Committee, though traders are still unsure whether the Fed will hike interest rates at the September meeting. He expects that to occur in September. “A rate hike is getting nearer but it’s not there yet”, said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.
“The Fed is doing a good job getting people ready for a rate hike before year’s end, making it likely to be a low-impact event”.
It isn’t just that this will tend to encourage investors to take on too much risk (anyone remember that Petrobras 100-year bond?), it is also that the jolt when rates must eventually rise will be worse. “The Fed doesn’t want to upset the apple cart with any type of market shock that could cause further problems in the global economy, whether that is in China or in Europe”.
At 2.49pm, the Dow Jones industrial average was up 0.71 percent at 17,755.09.
The statement was approved on a 10-0 vote, marking the fifth straight time it has been unanimous.
During Yellen’s testimony to Congress this month, some Democrats urged her to consider delaying a rate hike given that inflation remains below the Fed’s 2 percent target.
A survey last month by financial information website Bankrate.com found that a majority of Wall Street experts expected the Fed to raise the rate in September.
Part of the slowdown in inflation, though, reflects a plunge in oil prices over the past year, which will reverse itself once energy prices rebound. A coalition of community activists and labor groups is urging the Fed to leave its target rate unchanged amid elevated unemployment rates among minorities.
During the session, Twitter shares fell 14.5 percent to a year-low of $31.24 after the microblogging company said its number of monthly average users rose at the slowest pace since it went public in 2013.
