The US Federal Reserve is likely to raise rates later this year, but further improvement in the economy and labour market is needed before the move is made, says Colonial First State Global Asset Management (CFSGAM).
CFSGAM predicts the first rate hike, since 2006 be delivered on 17 September.
In a recent report – US Federal Reserve Update: Can you feel it? – CFSGAM said that following the potential rate hike in mid-September, further increases are expected at every second Fed meeting throughout 2015 and 2016.
In a statement issued by the Board of Governors of the Federal Reserve System, a rate hike will hinge on improvement in economic activity and the US labour market.
“The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its two per cent objective over the medium term,” the statement said.
At the central bank’s most recent meeting on 17 June – where rates were left on hold – the Fed’s economic growth forecast was revised, down to 1.8 per cent to 2.0 per cent, from 2.3 per cent to 2.7 per cent, according to CFSGAM.
The Fed’s inflation target, 1.3 per cent and 1.4 per cent, has been left unchanged for 2015. By the end of 2016, inflation is forecast between 1.6 per cent and 1.9 per cent, said CFSGAM.
CFSGAM noted that the Fed’s target unemployment rate has been raised to approximately 5.2 per cent to 5.3 per cent at the end of 2015 ([it] was 5.0 per cent and 5.2 per cent), and down to between 4.9 per cent and 5.1 per cent by the end of 2016.
“The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target funds rate below levels the committee views as normal in the longer run,” said the statement from Board of Governors of the Federal Reserve.
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