The pace of US monetary tightening has been a key concern for Korea, which fears higher interest rates in the USA would accelerate the outflow of global funds from emerging markets.
Advertisement
The Fed’s statement comes against a more perilous global backdrop.
The statement said the employment outlook “improved further even as economic growth slowed late past year”. “The rand is down nearly 15.5% against the dollar since the last monetary policy committee meeting in November”. The statement did say the central bank was “closely monitoring” conditions.
The Fed also said inflation was expected to remain low in the near term due in part to further declines in energy prices but saw the effects as transitory.
Job growth remains relatively strong and consumers are spending more money, but forecasters generally estimate that the economy expanded at an annual rate below 1 percent in the last three months of 2015.
The Fed said it still expects the downward inflationary pressure from lower energy and import prices to prove temporary.
US stocks are trading higher as oil companies are surging along with the price of oil and strong earnings reports propel Facebook and Under Armor. And crude oil prices continued to plummet, weighing on oil and commodity exporters around the world. USA stocks were set for an uninspiring open following Wednesday’s big retreat on Wall Street, when both the main indexes fell by more than 1 percent.
The Fed will update its forecasts for growth, inflation, unemployment and interest rates in March, and officials likely want to assess the tone of economic data and market developments between now and then before deciding what signal to send about the path of rates. That language did not appear in its December statement. So far, the Fed hasn’t indicated it is is changing its mind. And inflation is “expected to remain low in the near term”.
Traders in futures markets marginally cut bets that the Fed would raise interest rates at their next meeting in March to a 32 possibility, from 33 percent just prior to the statement.
Monday’s speech by Vice Chair Fischer is now the next focus point, when he will be able to say how anxious the Fed is about recent developments and hence help shaping rate expectations. But expectations may not be enough to move the needle anymore. It means different things to different people.
Despite its worries, the Fed stopped short of saying that the volatility in January will change its plans to raise rates at least four times for the rest of 2016. Some now see the falling stock prices as the correction that they had forecast would occur after the Fed started raising rates.
All the Fed policymakers participated in the two-day meeting in person, a central bank spokesman said.
“This would constitute a moderate acknowledgement of risks that avoids shutting the door to a March hike”, Goldman Sachs economist David Mericle said.
Advertisement
“The greater concern about the global environment shown by the Fed should encourage investors to realise that they are not about to go insane with rate hikes this year”, said Rob Carnell, an analyst at ING.
