Last night the US Federal Reserve held interest rates at near zero, with comments from chairman Janet Yellen pointing to worries over economic growth, low inflation and global turmoil.
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But there has been mounting concern outside the US over a potential “lift-off” and negative repercussions of a rate rise – the first since 2006 – on emerging economies.
In Germany, the Dax index fell 3% and France’s Cac 40 dropped 2.5%. Bond prices rose, sending yields lower.
At least that’s the message from the money markets after policy makers kept interest rates unchanged Thursday.
It also slightly lowered its forecast for inflation for the coming two years, expecting 1.7 percent next year and 1.9 percent for 2017, still below the Fed’s policy target of 2.0 percent.
On the other hand, the Fed has made it clear that the current policy of low rates is an unusual measure meant to shore up the economy and will eventually be dismantled.
Falling inflation makes it harder for central banks to raise rates. Other regional markets were also moderately higher, rising in Taiwan, Singapore, Indonesia and the Philippines.
“We’re in the same situation we were in before, which is uncertainty about when are they going to move”, said John Bonnell, a senior portfolio manager at USAA Investments in San Antonio, Texas. This led many to conclude that China’s market slide last month had raised red flags for Fed officials.
In an updated economic forecast, 13 of the 17 Fed policymakers said they see the first rate hike occurring this year.
Critics now point to December as the earliest point for a rate rise by the Federal Open Market Committee (FOMC), but 2016 is looking increasingly likely for the long-awaited move. Higher rates hurt bullion because the commodity doesn’t pay interest, unlike some competing assets.
PAY-PER-VIEW: Cablevision, a New York-area cable TV provider, jumped $4.22, or 15 percent, to $32.75 after agreeing to be bought by the European cable company Altice.
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DIAL TONE: Verizon slumped 95 cent, or 2 percent, to $45.26 after the communications company said its earnings may be flat this upcoming year. The price of oil fell sharply, pushing down energy stocks. Oil prices had surged the day before. Bullion for immediate delivery traded 0.1 per cent lower at $1,130.07 an ounce at 2:07pm in Singapore, paring this week’s advance to two per cent, according to Bloomberg generic pricing.
