The Federal Reserve has postpone their plans due to the global economic situation and the lower than expected rate of inflation in the U.S.
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Chris Rupkey, chief financial economist at MUFG Union Bank, in NY, said: “December is a very, very live date for action, and frankly, given the stellar 271,000 jobs report since the October meeting, we would be astounded if they don’t raise rates finally”.
Traders continue to seek guidance on whether the Fed will move from near-zero rates at its policy meeting next month.
The Fed has kept its benchmark for short-term rates near zero since late 2008, but there has been increasing speculation about the timing of a rise. In the event, the Fed managed a rare feat – they left the market convinced that they will hike rates in December but equally convinced that it won’t be a big deal.
In their October meeting, Fed officials were much more sanguine about the ripple effects for the American economy.
“I believe it will soon be appropriate to begin a new policy phase”, he said, adding he will monitor economic data between now and a meeting on December 15-16, for which he has a vote on policy.
Fed officials at the October meeting expressed confidence in the health of the domestic economy despite disappointing job growth in August and September.
However, a few analysts opined that the minutes also showed a debate among the Fed members of the monetary policy committee about the USA economic outlook, which may have affected sentiment about an impending rate hike in December.
MSCI’s broadest index of Asia-Pacific shares outside Japan.MIAPJ0000PUS rose 1.98 percent, while Australia’s main index AXJO jumped 2 percent for a third straight session of gains. They took note of the USA economy’s resilience through a summer of financial market turbulence and felt that global threats had “diminished”.
“The public and markets have been well prepared and understand that we’ve been watching carefully the data to determine what the true underlying nature of the economy is”, Mr. Lockhart said.
Yields on longer-dated Treasuries fell as investors braced for the Fed to gradually raise rates after December.
Also, a number of Fed policymakers were concerned that, having built up expectations of a hike for so long, not moving would send a disturbing message and erode the bank’s credibility. The dollar’s weakness despite stronger signs of an impending US rate hike indicates that investors are already expecting the rate increase next month, Mizuho Bank said in a commentary.
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Meanwhile, United States housing starts dropped to the lowest level in seven months in October, while a surge in building permits signalled the housing market remained on firm footing.
