The US Federal Reserve held interest rates unchanged on Wednesday and while it left the door open to a hike in June, its statement implied that it was in no hurry to follow on from its December rate rise.
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“The softness in USA economic data to start 2016 gave the Fed plenty of cover to hold off on further rate hikes now, and they held their cards close to the vest regarding upcoming meetings”, said Greg McBride, chief financial analyst at Bankrate.com.
Instead, it suggested that domestic growth – generally thought to have slowed to about a 0.9% annual pace in the first quarter – and still-weak inflation were its primary concerns.
That statement largely mirrored the one issued after the Fed’s last policy meeting in March, with the U.S. central bank’s rate-setting committee describing an improving labour market but acknowledging that economic growth seemed to have slowed.
As expected, the central bank said it plans to leave its benchmark interest rate unchanged following a two-day meeting.
Kansas City Fed President Esther George dissented for the second consecutive meeting. It said household spending had “moderated”, and business investment and export activity remained “soft”.
“If anything, Fed officials will likely want to encourage markets to price in more tightening than is being priced in now”, said Jim O’Sullivan, an economist at High Frequency Economics, in a note.
However, Joe Saluzzi, co-head of Equity Trading at Themis Trading, claimed the market “is not expecting in a rate hike in June, judging by the Fed-funds rating pricing in a 21% probability”. “We expect they will be supportive”, said Jim O’Sullivan of High Frequency Economics.
Gold has rallied 17 percent this year on expectations that the Fed will not raise rates aggressively this year due to global economic risks. The next meeting is set for June 14-15.
“Inflation has continued to run below the Committee’s 2% longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports”, the FOMC continued.
Fed Chair Janet Yellen said last month that it’s appropriate for the central bank to “proceed cautiously” in adjusting policy, citing the risks to the US economic outlook from global developments.
S&P 500 e-mini futures (ESc1) edged up 0.1 percent, after Wall Street logged solid gains overnight.
Any movement in United States interest rates immediately impacts Hong Kong, whose peg to the US dollar means U.S. rates would affect rates for the vitally important Hong Kong housing and real estate market.
The yield on the twoSHY-year Treasury lost 5.2 basis points to 0.789%, its lowest level in 10 days, according to Tradeweb. The December Fed rate hike didn’t help deposit rates. The bank’s next chance to raise rates will be when it meets in June.
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The FOMC decision had only a small net effect on the dollar.
