Asian stocks rose Thursday, tracking gains on Wall Street after the Federal Reserve left interest rates unchanged and forecast it will raise rates more gradually than it had envisioned previous year. “Inflation picked up in recent months”, the Fed said in a policy statement in which it kept the target range for its overnight lending rate at 0.25-0.5 percent.
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Craig Jerusalim, a portfolio manager at CIBC Asset Management, says the risk with resuming rate hikes too quickly is that it will slow growth in the USA, which can eventually lead to a global recession.
Fed Chair Janet Yellen spoke to the media after the conclusion of its policy meeting.
Yesterday, the US Federal Reserve reduced its earlier forecast of four interest rate hikes this year to two, marking a more gradual rate rise in 2016. USA 10-year notes, on the other hand, briefly hit 2 percent going into the release of the Fed decision, a seven-week high, but fell to session lows as well.
The potential for more money to continue flowing into commodities and equities, rather being lured by higher USA interest rates, boosted crude oil and emerging market stocks.
Some of the apparent gains in prices, Yellen said, relate to “categories that tend to be quite volatile, without very much significance for inflation over time”.
Officials maintained their forecast for a 4.7 percent US unemployment rate in the fourth quarter of this year. The majority of policymakers now said they expected it would be appropriate to raise rates by about a half a per centage point by the end of this year.
“The best course of action in this situation is to leave rate hikes on the table at the next couple of meetings”.
Kansas City Fed President Esther George was the only policymaker to dissent on Wednesday.
Financial markets have recovered from a heavy selloff in the first two months this year, but remain cautious as improving conditions could push the Fed to tighten its policy sooner than expected.
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Among factors behind U.S. economic growth, Yellen spoke highly of the country’s labor market and said there was still room for further development. “Clearly, when the Fed are concerned by heightened global risk and persistently low inflation expectations, the result is traders reaching for the buy button”. Meanwhile the dollar, whose strength in 2015 hurt USA exports and dented growth, has slipped about 1.3 percent against a broad basket of currencies since December 31.
