USA stocks climbed Wednesday as investors were relieved that the Federal Reserve once again left interest rates unchanged.
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In a press conference after the meeting, Fed chair Janet Yellen said policy was in support of “statutory goals for maximum employment and price stability”, and that the Fed expected the economy to expand “at a moderate pace for the next few years”.
After a two-day crucial meeting, the Federal Open Market Committee said in a statement that while the case for an increase in interest rates rate has strengthened, status quo was being maintained to await further evidence of continued progress.
The Fed last raised interest rates in December 2015, its first increase in almost a decade. They said they expected Japan’s central bank to eventually slash its policy rate further. Governor Kuroda and his board shifted the focus of stimulus from expanding the money supply to controlling interest rates, pledging to pin benchmark 10-year yields around zero.
“The rate environment looks less accommodative even it remains on a more gradual slope, meaning that oversized rallies in gold may not have much room to run”, INTL FCStone analyst Edward Meir said in a note. Fed projection materials point to two hikes in 2017, consistent with recent comments that they would hold rates low for longer. This would normally see the U.S. dollar rally, however, downgrades to the Fed’s economic growth projections and revised expectations for only two hikes next year suggests uncertainty within the ranks’.
Federal Reserve Chair Janet Yellen defended the independence of the US central bank Wednesday, saying it does not play politics in response to charges from Donald Trump that she is manipulating financial markets to benefit President Obama.
The U.S. Fed did signal it could hike rates by year-end as the labour market improved further, but cut the number of rate increases expected in 2017 and 2018. It expects the economy to expand just 1.8 percent this year and by an nearly equally sluggish 2 percent in both 2017 and 2018.
Fed policymakers also forecast that inflation will almost reach its 2 percent target next year and remain 2 percent in 2018 and 2019.
“People are expecting that the Fed is going to raise rates for sure in December”.
The FOMC will meet two more times this year: November 1-2 and December 13-14. “Against this backdrop, the Committee chose to maintain the target range for the federal funds rate at 1/4 to 1/2 percent”. There were three dissents in favor of an immediate rate hike from Boston Fed President Eric Rosengren, Kansas City Fed President Esther George and Cleveland Fed President Loretta Mester. Paychecks in August were up 2.4% from a year ago. So it comes as no surprise then that the FOMC made a decision to keep interest rates unchanged at their September meeting.
In Europe, Mario Draghi, head of the European Central Bank, is seeking help from the governments of the 19 counties that use the euro currency.
The FOMC clearly signaled a hike before the end of the year in both the language and the dots.
Mike van Dulken and Henry Croft at Accendo Markets said: “A positive start for equities comes as no surprise after risk appetite was given a boost by the US Federal Reserve electing not to hike rates last night, dovetailing nicely with the BoJ’s stimulus tweaking yesterday to keep the loose policy party in full flow”.
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Fed officials also marked down their estimate of the long-run level of short-term rates to 2.875 percent from 3 percent in June.
