Forex Blog: Currency Trading News & Analysis.

August 8th 2006

US Rate Outlook is Neutral

For the first time in almost two years, the Federal Reserve Board left interest rates unchanged at its monthly meeting. While interest rate futures indicated that there was only a 20% chance that rates would be raised, the markets still reacted with vigor when the announcement was made. In the forex market, economists and traders were quick to recalibrate their models and adjust their assumptions to reflect the possibility of future interest rate moves. At this point, most analysts are uncertain about the outlook, and the consensus is neutral. The Fed has explicitly sated that it will continue to hike rates if inflation doesn’t moderate and/or the economy continues to expand at a rapid pace. Barring such developments, it seems US rates may have peaked for the time being, which means interest rate differentials will only grow narrower in the coming months. USA Today reports:

The central bank is trying to balance evidence of slower growth, against continuing inflation worries. Oil prices are at near-record levels,…and a government report showed big gains in wage costs, another inflation driver.

Read More: Fed, worried about slowdown, leaves rates unchanged

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Posted by Adam Kritzer | in Central Banks, US Dollar | No Comments »

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