The wait is nearly over. Economists expected the Fed to leave rates unchanged after the end of its two-day meeting Wednesday.
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Michael Hewson, chief market analyst at CMC Markets UK, said: “It is clear that Fed officials had been hoping that the economic data would improve to an extent that any move on rates would likely be seen as a slam dunk in the way that last December’s rate rise was”.
The betting is that there will be no rate hike now but that the Fed’s statement will hint that a December increase is likely by sounding a more optimistic note about the economy.
Global markets have suffered severe volatility in the weeks leading up to the gathering, with Fed officials giving contradictory opinions on the need for a rise in interest rates. That’s a tough balancing act.
Ahead of the opening bell, futures for the Dow Jones Industrials gained 59 points, or 0.3%, to 18,106, while futures for the S&P 500 progressed 7.25 points, or 0.3%, at 2,138.25.
The Fed raised interest rates for the first time in almost a decade last December but weak economic data and global uncertainty have prevented it from raising the rates further.
The Fed’s last “dot plot” of individual members’ interest rate projections, from June, had penciled in two quarter-point hikes before year-end.
Here we go again: What once was a much heralded and anticipated rate decision, the September FOMC meeting seems all but wrapped up at this point. The present ratio is about 80% in Japan while the same is around 20% in the USA and the Euro Area. And uncertainty is high heading into the US presidential election in November.
Japan’s central bank has overhauled its massive stimulus programme, scrapping its focus on monetary base and setting targets for long-term rates.
We expect two-sided volatility in the United States dollar crosses. Homebuilders famously protested former Fed Chair Paul Volcker for hiking rates by sending him 2×4’s in the mail, even though the increases were created to tame troublesomely high inflation. The second is “inflation-overshooting commitment” which aims to expand the monetary base until the year-on-year rate of increase in inflation measured by consumer price index (CPI) exceeds the price stability target of 2%, and stays above this target rate on a consistent basis.
BONDS: Bond prices changed course and moved higher.
While the US economy is far from being truly healthy, it’s not exactly handicapped, either. “This is slightly positive for risk assets”.
Ed Yardeni of Yardeni Research, one of the voices calling for the Fed to hike today, noted that real median household income jumped 5.2 percent in 2015 – the best one-year gain since the data series started in 1968.
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Microsoft’s shares rose 1.21 percent to $57.50 in premarket trading after the software maker raised its quarterly dividend and said it would buy back up to $40 billion. Over the past 20 years, the Fed has never raised rates unless the market has been pricing in the chance of a hike in excess of 60%, so in actuality, rate expectations are completely muted for today and are sitting on the fence for 2016.
