Federal Reserve policymakers said the labor market and housing have improved, moving closer to ending an unprecedented period of near-zero interest rates without providing a clear signal on the timing of liftoff.
“The labor market continued to improve, with solid job gains and declining unemployment,” the Federal Open Market Committee said in a statement Wednesday in Washington. It said that “underutilization of labor resources has diminished,” dropping the modifier “somewhat” to describe the change.
Chair Janet Yellen is guiding the Fed toward its first rate increase in almost a decade as the nation approaches full employment. She has said the Fed is likely to tighten this year if the economy continues to improve as she expects, with market speculation focused on a move as soon as September.
“The housing sector has shown additional improvement,” the Fed said. “Business fixed investment and net exports stayed soft.” It dropped language saying energy prices appeared to have stabilized.
It said that it will tighten policy when it sees “some further improvement in the labor market,” adding the modifier “some,” and is “reasonably confident” inflation will move back to its 2 percent goal over the medium term.
“The committee is keeping the door open for rate hikes later this year, not necessarily opening it further or closing it,” said Michael Gapen, chief U.S. economist for Barclays Plc in New York and former Fed Board section chief in charge of monetary and financial markets analysis. “Labor markets have improved further, and they need to see a little more improvement to be ready to go, so that says September or December is in play.”
Treasury yields remained higher after the Fed announcement, with the 10-year note yielding 2.27 percent, up two basis points from Tuesday. Stocks extended earlier gains, with the Standard & Poor’s 500 Index up 0.5 percent to 2,104.59 as of 2:30 p.m. in New York.
The committee has kept the benchmark overnight federal funds rate at a record low of zero to 0.25 percent since December 2008, in the midst of the worst recession since the Great Depression.
The committee kept its description of the risks to the outlook for the economy and labor market as “nearly balanced.”
The decision was unanimous.
Economists surveyed last week said the odds of a rate increase at this meeting were virtually zero, while the chance of move in September was around 50 percent.