Federal Reserve statement leaves September US rate hike on the cards

The Federal Reserve's held interest rates steady, but subtly different comments left the market feeling slightly more confident about the timing of rate lift-off.

The US central bank held it key rate in a range of 0% to 0.25%, as it has for most of the last six years.

But a statement from the Federal Open Market's Committee (FOMC) showed the rate-setters were a tad more bullish about US economics prospects and the US jobs and housing markets in particular, which was taken as sign that interest rates could be lifted in September or soon after.

Wednesday's statement stated the Fed needed to see only “some further improvement” in the labour market before a rate rise, whereas June’s statement had just said “further improvement” was needed.

Also on the labour market, the Fed described job gains as “solid” and said that the underutilization of labour resources “has diminished since early this year”, an upgrade from “diminished somewhat” in June.

The committee said that “economic activity has been expanding moderately in recent months” and dropped a previous reference to activity having changed little.

Economists at BNP Paribas said the change in language was "an explicit signal" that a first rate hike is closer.

They also noted that on its housing market assessment, the FOMC was also minimally more upbeat than before, with Fed offials citing “additional improvement” rather than just “some improvement”.

Capital Economics was less confident, saying the tweaks of language "fall well short" of a clear hint that a rate hike is coming in September, although as minutes also showed that 15 of 17 officials expected rates to rise this year and 10 of 17 anticipated two 25 basis-point increases, this suggested there was "a good change that rates will rise at two of the three meetings left this year, with September still very much in play".

Barclays economists said that the change in language on the labour market plus the Fed's comments that it was confident inflation will move back to 2% over time, "suggests to us the committee remains on track to raise rates later this year".

"We believe the data will support a September start to the hiking cycle and retain that as our baseline forecast," Barclays added. "Should the data slip somewhat, or should international concerns rise to the fore, then the committee could choose caution and delay hikes."