Nothing much changed as a result of today’s FOMC meeting. If you are having trouble falling to sleep, I have the cure. Read today’s FOMC Statement as it’s sure to do the trick.

The Financial Times reports Fed Sets Course for 2015 Rate Rise.

The Federal Reserve set course for an increase in short-term interest rates as soon as September, as it expressed cautious optimism about the US economy following a sharp slowdown that struck in the first quarter.

However interest-rate projections from the Federal Open Market Committee signalled that the pace of tightening will be gradual, as officials seek to quell fears of a spike in borrowing costs.

A chart of interest-rate predictions from Fed officials pointed to two increases later this year, but the committee appeared to be heavily divided over whether that many rises would be merited, with an increased number of policy makers advocating only one move.

The Fed is treading a precarious line as it attempts to signal a rate rise while damping the risk of a market tantrum that could derail global growth. Top officials have repeatedly insisted policy will only be tightened modestly, and today’s forecasts from officials put the longer-run rate at just 3.75 per cent.

Stanley Fischer, Fed vice-chairman, said this month that “lift-off” was the wrong word for rate rises when they came, insisting that the central bank would instead be “crawling” as it pursued incremental increases.

Even so, some analysts argue that any move this year would be premature and choke off the recovery. Among them is the International Monetary Fund, which recently made a prominent call for the Fed to wait until 2016. Some officials within the Federal Open Market Committee have also been voicing caution.

Lael Brainard, a Fed governor, this month said the recent economic weakness may not be transitory and that more optimistic growth predictions were underestimating the negative investment implications from the oil price drop and the hit to growth from the higher dollar.

Gradual Pace

The Wall Street Journal reports Fed Signals Rate Hikes at a Gradual Pace

The Federal Reserve signaled it was moving toward interest-rate increases later this year now that signs of a slowdown in economic activity are waning, but the path of rate increases could be less steep than officials anticipated.

The last time the Fed made such projections, its consensus appeared to be building around two rate increases this year. Fed officials also nudged down their rate projections for 2016 and 2017 by a quarter percentage point. The shifts suggested officials have become less certain about the longer-run vigor of the U.S. economy and its capacity to withstand much higher rates. Expansion of output is on track again in 2015 to undershoot the Fed’s expectations.

In a press conference following the meeting, Chairwoman Janet Yellen said the importance of the initial rate increase “should not be overstated.” She emphasized that even after the first move higher, the Fed’s policy will still be broadly accommodative.

Ms. Yellen added the committee will decide when to first raise the federal funds rate “on a meeting-by-meeting basis” depending on its assessment of “incoming economic information and its implications for the economic outlook.”

Crawl-Off Analysis

The Fed can and will do whatever it wants, within reason.

If the economy is muddling along with weak growth, and the Fed still wants to hike anyway, it can make up any statements about the economic data that it needs to justify its decision.

If the economy relapses at any point between now and the September 16-17 meeting, hikes will likely be put off.

Today’s meeting and follow-up Yellen yap conference did not clarify anything.

I suggest December seems more likely than September unless data is strong between now and the September meeting. I am still not convinced there is a hike this year at all, but it does seem more likely than a month ago.

Dollar Not Impressed

The US dollar was clearly unimpressed with today’s announcement. The US dollar index opened at 95.27, rose to 95.59, but now sits 94.46, down .80 on the day. Had the Fed signaled strong action, the dollar would have soared.

Key to Decision

The key to the September rate hike decision will likely be the next set of reports on retail spending, housing, and wages.

Fed Statements at the July 28-29 meeting will set the tone for September.

Statements at the October 27-28 meeting will set the tone for December.

Here is the FOMC Schedule for 2015.

Mike “Mish” Shedlock