As expected, there were no major surprises at the Federal Open Market Committee (FOMC) meeting, with interest rates left unchanged and one increase in the United States Fed funds rate likely by December.
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Asian stock markets took the baton from Wall Street and rose nearly universally on Thursday after a divided Fed left short-term interest rates on hold but hinted that a rise in December was on the agenda.
“Circle December 14 on your calendar because the Fed has sent a clear signal that we’re on track for a rate hike if conditions hold”, said Bankrate’s Greg McBride.
“The FOMC chose to keep Fed funds target range unchanged at 0.25%-0.50%, this had been expected given the slow rate of improvement in recent economic data”, said Dominic Barnes, portfolio manager at Investec Wealth & Investment.
Many economists and investors say the Fed’s hesitancy to raise rates – and conflicting messages from its top leaders – has eroded public confidence in the central bank.
The Fed also projected a less aggressive rise in interest rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9% from 3.0%.
On Wednesday, Bank of Japan made a decision to adopt a target for long-term interest rates in an overhaul of its massive stimulus programme. Those numbers are little changed following the meeting’s results, though consensus has clustered around the 0.5-75% rate, at 51.9%. That may well be true when looking at the Fed real GDP trackers which is suggesting an uptick I the current third quarter compared to the anemic pace seen in previous quarters but recent data such retail sales, industrial production as well as key business surveys have clearly bee surprisingly weak. That speculation was primarily based on two board members remarking that perhaps now is the time to raise rates again. In 2.56pm trading in NY, the Dow Jones Industrial Average increased 0.4 percent, while the Nasdaq Composite Index gained 0.5 percent. Japan’s benchmark Nikkei 225 index jumped 1.9 percent on Wednesday on the news.
The yen pushed up by more than one percent to 100.33 to the dollar and 112.27 to the euro. It was trading around 76.25 USA cents. EUR/USD was 0.45 percent higher on the day, trading at 1.1235 at around 11:45 GMT.
Stock markets rose after the BOJ decision, buoyed by bank shares and a 2.9% jump in U.S. oil prices to $45.34 a barrel. U.S. gas prices meanwhile are still around 3 year highs. But it is not expanding as fast as the Fed had expected.
A drop below that August trough would take the dollar to its lowest levels since June 24, when the greenback fell to 99.00 yen-its lowest level since November 2013-as markets turned volatile after the United Kingdom voted to leave the European Union. For instance, the unemployment rate has remained at 4.9 percent for the past three months, and that’s up from 4.7 percent in May.
Fed chair Yellen said that’s absolutely not true in a press conference Wednesday.
The projections reflect the forecasts of all 17 participants in the Fed’s deliberations.
As for growth, the committee now foresees full-year gross domestic product of just 1.8%, a decrease from the 2% estimate in June.
A more common measure of inflation, core CPI, has exceeded that target, however, coming in at 2.2% year-over-year in August.
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Later this morning the RBA’s new team of Governor, Phil Lowe and deputy, guy Debelle will front the House of Representatives Economics Committee in Sydney for their first appearance.
