“The market’s clearly starting to take this as more of a hawkish signal, the front end of the curve is starting to rise.”, said Subadra Rajappa, head of USA rates strategy at Societe Generale SA.
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At a few point, the Fed will have to raise the rates after years of near zero interest rates. Federal Reserve Chair Janet Yellen has indicated that increases are not going to happen at every meeting, as they did under former Fed Chairman Alan Greenspan between 2004 and 2006.
“The committee continues to see the risks to the outlook for economic activity and the labor market as almost balanced”, the Fed said in its statement.
Wednesday’s FOMC statement has put the possibility of a December rate hike back on the table.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects a December rate hike if the jobs reports for October and November show the labour market is getting stronger.
“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress-both realized and expected-toward its objectives of maximum employment and 2 percent inflation”.
The Federal Reserve maintained that the economy was growing albeit modestly which continues to be a cause for concern.
Stock markets around the world and the USA dollar fell on Thursday as investors weighed the negative implications that a US interest rate rise before the end of the year would have on the global economy and markets.
Logan interpreted this statement to mean a December decision will be heavily contingent on the two employment reports and the inflation reports to be released between now and the December 15-16 Fed meeting.
Fed officials said Wednesday that the US economy is still expanding modestly.
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The two-year Treasuries yield, which is most sensitive to changes in traders’ view on Fed policy, rose 2 basis points to 0.729 percent, its highest level in more than month, according to Reuters data. As in the past, the one vote in opposition came from Jeffrey Lacker who has been pleading with his colleagues to raise the rate. It’s worth noting that the U.S. publishes its growth rate in a different way to the United Kingdom and the euzozone: 1.5% equates to a quarterly growth rate of about 0.4%.
