The Fed’s policy-setting Federal Open Market Committee, as expected, left its target range on rates unchanged at 0.25-0.50 percent and removed a specific reference on the global economic risks in its policy statement.
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Federal Reserve Chair Janet Yellen was among nine members of the Fed’s Open Market Committee who voted to keep interest rates unchanged. The Fed stuck to its stance that the USA monetary policy will tighten only gradually and gave no hint as to whether it could lift the short-term federal funds rate at its next meeting in June. USA economic growth braked sharply in the first quarter to its slowest pace in two years.
The dollar moved higher later in the United States session with the yen off its best levels, but there was overall confidence in an environment of very low interest rates and demand in the commodity and energy complex remained very strong.
The Fed will be meeting on June 14-15 which analysts are pointing to as the time it may raise rates if the U.S. economy keeps up its modest rate of growth.
The tumbling yield trend was more pronounced in short-term Treasurys, as they are most sensitive to changes in the Fed-funds rate and tend to move when the market’s rate hike expectations shift. But the central bank has yet to take a second step.
In March the FOMC statement highlighted global issues, saying worldwide economic and financial developments “pose risks”.
Chris Williamson, chief economist at financial information service Markit, said: “The Fed’s issue is finding the right window to hike rates, and telegraphing that intention early enough to not unsettle the markets”.
Chicago Fed President Charles Evans, one of the most vocal supporters of central bank stimulus, recently said he considers two rate hikes this year as “appropriate”. The April statement said merely that the Fed continued to monitor global economic and financial developments.
Investors now see a 23 percent probability that the Fed’s overnight lending rate will rise in June, up from 21 percent before the decision, according to CME’s FedWatch group.
(Kitco News) – Gold prices were modestly higher in early afternoon USA trading Wednesday, following the much-anticipated FOMC statement that was deemed mostly neutral.
Only the Japanese yen JPY= was trading weaker against the dollar ahead of a BOJ’s policy decision, which is often announced around noon in Tokyo, or 0300 GMT, will be a close call. Then at the start of this year, oil prices fell, stocks tanked and China fears amplified.
Analysts believe the goal of the Fed is to soak up some of the banks’ 2.5 trillion USA dollars of excess reserves as the US economy begins to recover.
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The yield on the two-year Treasury TMUBMUSD02Y, -3.84% lost 5.2 basis points to 0.789%, its lowest level in 10 days, according to Tradeweb. Losses on Wall Street stocks and the Bank of Japan’s surprise decision to hold off on more stimulus also stoked safehaven bids for US government debt, analysts said.
