Interest rates could rise as soon as September, hints US Fed chief Janet Yellen

The Fed only two real opportunities to raise interest rates: September and December

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The board of the US Federal Reserve has left the door open to a possible interest rate rise in September as it emerged from its latest two-day monetary policy meeting, having voted unanimously to keep the cost of borrowing on hold.

In a statement, the Fed’s chair, Janet Yellen, remarked that “it will be appropriate to raise the target range for the federal funds rate when [the Fed] has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2 per cent objective over the medium term”.

The US central bank’s statement remained upbeat on the employment market, as it has been for some time, but less so on inflation, which remains below its target.

The Fed now has only two real opportunities to raise interest rates before the end of the year: in September and December.

That the cost of borrowing money was held at the current rate came as no surprise to the markets.

Rates have been at virtually zero since the Fed cut rates to boost growth in 2006, and without clear guidance in the latest statement, the US markets were little changed after the decision.

The Fed has been hinting since December that it will raise rates for the first time in almost a decade, but mixed economic signals from inside the US, ongoing crises in the eurozone and slowing growth in China have prevented action.

Ms Yellen has repeatedly spoken of “normalising” US interest rates, meaning that it will actually cost money to borrow money.

Just this week, the monthly Consumer Confidence index plunged on the back of several areas of increased pessimism including foreign markets.

The numbers, calculated by the Conference Board, a private group, showed an almost double-digit decline in US consumer confidence, the largest single-month fall in four years. The index was revised to 90.9 in July, down from 99.8 in June.

The Conference Board released its data halfway through the Fed board’s two-day meeting, and it showed a worrying downward trend in confidence in a number of economic indicators including the labour market.

A downward revision of first-quarter US economic growth, combined with foreign issues and worsening consumer confidence, had reduced the prospects of a surprise rate rise this month to zero.

Bill Waite, the chief executive of the economics consultancy Semnia, said: “The sentiment among Fed governors and watchers has shifted to a higher probability of a rate increase before the end of the year.

However, the other issue that made this statement more opaque than usual is that the Fed had what was fundamentally a security leak last week which has invigorated members of Congress that are calling for greater oversight.”