On Wednesday, the Federal Reserve also made it clear that officials will probably raise rates later this year, perhaps twice, in small increments.
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Stocks, emerging market currencies and oil all rallied in Asia on today after Federal Reserve chief Janet Yellen lowered her expectations for USA interest rate hikes this year. A statement from the Fed said: “global economic and financial developments continue to pose risks”, and “inflation is expected to remain low in the near term, in part because of earlier declines in energy prices”.
Most economists now predict interest rates will not rise until 2017, although some have suggested the Bank could instead cut them further at some point amid worsening economic conditions at home and in the rest of the world as markets continue to be in turbulence and oil price to fall.
Giving a picture of the USA economy less bullish than many had expected, the Fed still forecast continuing hikes to the federal funds rate this year, but at a slower pace than foreseen in December.
Vice Chairman Stanley Fischer said last week that the Fed may “be seeing the first stirrings of an increase in the inflation rate – something that we would like to see”. The European Central Bank is expanding its quantitative easing program and pushing interest rates deeper into negative territory in an effort to spur economic growth.
The dollar index hovered near a one-month low as the Fed’s dovishness caught markets by surprise.
U.S. stock markets, which had slumped by more than 10% by mid-February from the start of the year, have also regained ground, with the Standard and Poor’s 500 Index now down just 1.4% this year through Tuesday.
“I think it’s the Federal Reserve coming more in line with reality”, said Craig Erlam, a senior market analyst at Oanda, based in London. Its preferred inflation gauge did rise in January to a 12-month increase of 1.3%, faster than the scant 0.7 rise over the 12-month period that ended in December. The median of policy makers’ updated quarterly projections saw the rate at 0.875% at the end of 2016, implying two quarter-point increases this year, down from four forecast in December. US shares were set to drift higher with Dow futures up 0.2 percent at 17,174.00.
The U.S. central bank, however, pointed to ongoing risks from an uncertain global economy which could lead to rate hikes sooner than anticipated. The Nasdaq Composite added 35.30 points, or 0.75 percent, to 4,763.97.
The euro jumped to $1.1249 Thursday from $1.1226 in United States trade and well up from the $1.1090 in Tokyo Wednesday.
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CURRENCIES: The dollar fell to 111.56 yen from 112.77 yen the previous day.
