Fed keeps rates unchanged, doesn't spring any surprises

The US Federal Reserve kept policy unchanged on Wednesday with rate-setters apparently only updating their description of current economic conditions.

Nevertheless, some analysts believed the minutes would provide greater colour on the deliberations between top officials, with trade tariffs possibly an increasingly debated topic.

Thus, in Wednesday's post-meeting statement policymakers at the central bank said the economy was growing at a "strong" rate, whereas in June they had described the pace of expansion as "solid".

Similarly, the inflation gauges which the Fed tracked most closely were now "near" 2.0%, where as the last time around they had said inflation was "near" 2.0%.

America's monetary authority had a so-called symmetric 2.0% inflation target, which was understood to be the -core' price deflator for personal consumption expenditures, meaning it was equally opposed to significant and sustained overshoots of its price objective as it was to undershooting it.

Rate-setters continued to point towards a gradual pace of rate hikes, reiterating that policy was "accommodative".

"This statement is a placeholder ahead of the quarterly forecast meeting next month," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"We see no reason, then, to change our view that the Fed will hike in both Sep and Dec this year, but we don't expect any serious change in the language of the statement until Dec or March."

For his part, Rhys Herbert at Lloyds Bank chipped-in: "It had been suggested beforehand that the forward guidance on policy may be slightly amended, in line with Fed Chairman Powell's recent testimony to Congress, to say that there would be further gradual rate increases "for now".

"That would not necessarily have been a signal that rates would remain on hold in September but could be seen as a 'dovish' indication that the Fed was fairly close to a pause in its tightening path as rates approach its estimate of 'neutral'."

Meanwhile, Antoine Lesne, Head of EMEA strategy at State Street, said: "Today's meeting provided little insight, as it was not followed by a speech. September and December hikes are still on the cards based on futures’ based probabilities, but the market may still not be pricing in as many hikes in 2019 as the latest dot plots.

"For now, focus will turn towards employment and inflation. While both are strong they will unlikely overheat and the FOMC is not in a rush to accelerate the pace of hikes. This environment could still support the US dollar. Treasury yields may be more sensitive to the Bank of Japan announcement than the FOMC one, looking for potentially higher yields in the belly of the curve."

Wednesday's decision was adopted by a unanimous vote, as in June.

In an initial reaction, as of 1922 BST the yield on the benchmark 10-year US Treasury note was three basis points higher to 2.99%, versus an intra-session high of 3.01% reached earlier in the day.

Two-year US government note yields were flat at 2.67% having earlier hit 2.68%.