Federal Reserve Holds Steady

The two‐day Federal Reserve meeting wrapped up on Wednesday with no change in interest rates as expected. In a widely expected move, the central bank's policymaking Federal Open Market Committee voted unanimously to keep the target range for its benchmark rate at 1.75 percent to 2 percent.

However, the committee is widely expected to approve an increase at the September meeting and a tweak in the language from the post-meeting statement could be a nod toward more monetary policy normalization. The statement said the labor market has "continued to strengthen," language consistent with the June meeting. However, the committee went on to note that "economic activity has been rising at a strong rate," a more bullish view than the June characterization of "solid" growth. In addition, the statement noted that household spending and business fixed investment have "grown strongly." That, too, is an improvement from June's characterization that household spending has "picked up."

The subtle changes came days after the government said GDP grew at a 4.1 percent rate in the second quarter, the fastest in nearly four years. In addition, the unemployment rate is near a generational low at 4 percent, though manufacturing data released Wednesday pointed to concerns about the impact that tariffs would have on activity. The Fed statement made no mention of the tariff battle in which the U.S. is engaged with its global trading partners.

There were no other substantial changes in the statement. The committee noted that its policy stance remains "accommodative" and said inflation continues to progress near the Fed's 2 percent goal. But multiple Fed officials, including Chairman Jerome Powell, have sent indications that two more interest rate hikes are coming before the end of the year.

Traders in the fed funds futures market are indicating a 91.4 percent chance of a September increase and a 68.2 percent probability for another move in December, according to the CME's tracker. They would come on top of previous hikes in March and June.

However, the Fed of late has run into some significant political resistance. President Donald Trump, in a recent CNBC interview, bemoaned the central bank's desire to keep up with its gradual but consistent move to resume normalizing policy. The Fed has been on a rate-hiking cycle since December 2015, after keeping the funds rate near zero for seven years. Trump said he is worried that rate hikes could stymie growth that only recently has broken out of its post-recession slumber.

There was no indication in the statement of discussions regarding the president's historically unusual remarks, and most observers believe the Fed won't be swayed by presidential rhetoric.