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Fed keeps interest rate unchanged in line with expectations

2-Aug-2018

The US Federal Reserve concluded its two day meeting and as expected kept interest rate unchanged at 1.75-2%. Fed reiterated optimism about US economy keeping expectations high that there may be two more rate hikes this year. Fed has remained unfazed despite flattening yield curve, trade war worries and Trump’s concerns about higher interest rates

According to FOMC statement, economic activity has been "rising at a strong rate," and unemployment "has stayed low,". Fed repeated guidance for "further gradual increases" in its policy benchmark rate. The committee described risks to the outlook as "roughly balanced," and restated that "monetary policy remains accommodative".

Federal funds futures implied traders are pricing in about a 91% chance of a rate rise in September. Odds for fourth rate hike in December stood slightly above 60%.

Fed’s decision was largely in line with expectations and we saw little market reaction. The US dollar index trades near 94.7 levels after a 0.1% gain yesterday. Commodities trade mixed with gold near $1220/oz level, industrial metals and crude oil trading largely lower.

Market reaction is muted also due to focus on other events. US China trade war has intensified with US threatening to impose higher import duty on $200 billion. Focus is also on Bank of England decision today as the central bank is expected to raise interest rate. Also in focus is US non-farm payrolls data due Friday.

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