In its monetary policy meeting last week, the Federal Reserve (Fed) left its benchmark interest rate unchanged and planned to start shrinking its balance sheet “relatively soon”, as policymakers assess progress toward their inflation goal. The Federal Open Market Committee (FOMC) voted to keep its key interest rate in the range of one to 1.25 per cent.
Fed officials did not indicate a specific timeline for further rate hikes, but will probably hold off until December. The Fed hinted that it will start the balance-sheet normalisation of $4.25 trillion holdings of Treasuries and mortgage-related debt in September or October, by saying to expect such action “relatively soon”. This would be another policy milestone in economic recovery, now in its ninth year.
In the meantime, the International Monetary Fund (IMF) retained its global growth forecast for the world economy for this year and the coming year.
The IMF revised up its growth expectations for the eurozone and Japan. The anticipated higher growth in the eurozone showed “stronger momentum in domestic demand than previously expected”.
China’s growth forecasts have also been revised up, reflecting a strong first quarter of 2017 while US growth projections have been revised down. Global GDP is forecast to grow by 3.5 per cent in 2017 and 3.6 per cent in 2018, unchanged from the projections released in April. IMF managing director Christine Lagarde said she thought the global recovery was “quite well anchored”.
Finally, German business confidence strengthened in July, hitting a third record high in as many months as Europe’s largest economy powered ahead and morale lifted across industry. The Munich-based IFO institute said its business confidence index rose to 116 in July from 115.2 in June. The score was expected to decline to 114.9. Similarly, the current conditions index increased to 125.4 in July from 124.2 in June, although it was expected to fall to 123.8.
The business expectations index, which measures attitudes towards business prospects over the coming six months, came in at 107.3 in July from 106.8 in June, well above the forecast of 106.5. IFO chief Clemens Fuest said in a statement that “sentiment among German businesses is euphoric”.
This report was compiled by Bank of Valletta for general information purposes only.