July 31 – August 1, 2018 FOMC Meeting

In a Nutshell: “…economic activity has been rising at a strong rate.”

Decision: Fed funds rate target range remains at 1.75% to 2.00%.

The FOMC members came to Washington, ate some good meals and said the obvious: The economy is strong. Indeed, the simplest thing to show how strong the members think economic conditions are, is to repeat the Fed’s paragraph – I added the emphasis:

“Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent.”

I think it is clear the Fed members think the economy is growing strongly (okay, I will stop using the word strong). This was an upgrade from the June FOMC description of the economy and about as exuberant about economic conditions as I have seen in, well, I don’t know how long! There were no specific warnings, though saying that inflation remains near the 2% target, in conjunction with above trend growth, tends to imply the risk is toward the upside. That is why the Fed made it clear that “The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with … inflation near the Committee's symmetric 2 percent objective over the medium term.”

If you had any doubts about a rate hike in September, you can put those to bed. The members can still say that inflation is near the 2% target, but that ability may not last much longer unless it keeps raising rates. Given the Fed’s evaluation of current and future growth, rate hikes are likely in September, December and possibly as many as four more next year, unless the economy decelerates sharply.

(The next FOMC meeting is September 25,26, 2018.)

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.