Enough Economic growth has been created to improve labor market

In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.

Our decisions always depend on the degree to which incoming data continues to confirm the [Fed’s] outlook.

While economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market.

The [Fed] expects moderate growth in real gross domestic product, additional strengthening in the labor market, and inflation rising to 2% over the next few years. Based on this economic outlook, the [Fed] continues to anticipate gradual increases in the federal funds rate will be appropriate over time.

Janet Yellen to speak in Jackson Hole on Friday August 26, 2016

Awaiting Fed Chair Yellen at Jackson Hole. Since the committee met in July 2016, another strong employment report has been received and the Q2 GDP numbers, although soft at the headline level, contained very solid readings on private consumption. We believe this will be sufficient for Chair Janet Yellen to give a more constructive assessment of labor markets and economic momentum in Jackson Hole on August 26.

If the August employment report, scheduled for release on September 2 (after the Economic Policy Symposium at Jackson Hole), is solid, then we expect the Fed to raise rates at its September meeting. That said, the concerns in some corners of the committee about the inflation outlook may support a shift in the reaction function away from observed labor market progress toward actual progress on inflation. Should this policy shift take place, then the next rate increase is likely to be deferred to December, if not further into 2017.