WASHINGTON -- The U.S. economy and job market continue to strengthen, the Federal Reserve said on Wednesday, leaving the door open for a possible interest rate hike when central bank policymakers next meet in September.
Following a two-day policy meeting, Fed officials said they felt the economy had overcome a first-quarter slowdown and was "expanding moderately" despite a downturn in the energy sector and headwinds from overseas.
The central bank nodded in particular to "solid job gains" in recent months.
"On balance, a range of labor market indicators suggest that underutilization of labor resources has diminished since early this year," the Fed said in a policy statement that kept rates unchanged.
That language marks an upgrade in its view of labor conditions since its June meeting, when it said labor slack had "diminished somewhat."
The statement may strengthen expectations of a rate hike at the Fed's September meeting. The central bank has kept rates at a near-zero level since December 2008 as part of its effort to spur the recovery from the 2007-2009 financial crisis.
Treasury yields fell with the 10-year slipping to 2.28 percent from 2.29 percent. After a modest run higher following the statement, the S&P 500 was slightly below where it was before the release, up about 0.4 percent on the day.
However, the Fed didn't give a clear signal on its rate plan. Instead, it said it wanted to see "some further improvement in the labor market," and gain more confidence that low inflation will rise to its 2 percent medium-term target.
The policy statement also retained language saying that risks are "nearly balanced," suggesting the Fed is still more concerned about a new economic downturn rather than of rapidly rising inflation.
Central bank officials and market analysts have been waiting to see if weak growth in the first part of the year signaled the beginning of the end of an economic expansion, or merely a pause.
The verdict now seems firm.
%VIRTUAL-pullquote-Enough improvements have been made in the labor market that the Fed only needs a little more confirming evidence to say it is time.%"The Fed is taking baby steps towards a rate hike. Enough improvements have been made in the labor market that the Fed only needs a little more confirming evidence to say it is time," said Brian Jacobsen, Chief Portfolio Strategist at Wells Fargo Funds Management.
Most economists forecast that U.S. economic growth will pick up after a lackluster first half and that the Fed will begin its monetary tightening in September, according to a Reuters poll published last week.
And Wall Street's top banks still target September as the most likely time for the Fed to begin its monetary tightening, according to another Reuters poll published earlier this month.
Though inflation remains weak, the statement portrayed an economy that continues to tighten, with a 5.3 percent unemployment rate and steady job creation.
With no meeting scheduled in August, the Fed will have two months of data to analyze before deciding whether to hike rates for the first time since 2006.
There were no dissents.
9 Numbers That'll Tell You How the Economy's Really Doing
Fed Sees Improving Economy; September Rate Hike in View
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.