The Fed’s decision to leave interest rates unchanged again is, in many ways, more straightforward than the BOJ’s announcement. And in the statement, the Fed said, “Near-term risks to the economic outlook appear roughly balanced”, its first such positive assessment this year.
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As the Fed begins the process of interest rate normalization, businesses both large and small will pay more to borrow money than they have at any time since the crash.
“We judged that the case for an increase has strengthened but decided for the time being to wait”, Yellen told a news conference.
The consensus among economists is for a hike in December as the Fed’s November meeting comes right around the U.S. Presidential elections.
Through the post-recession recovery the Fed has hemmed and hawed about raising rates from levels that reflect a country in economic crisis. If they had raised rates, we would’ve sold off for a very short period of time before going back higher.
The strengthening of the inflation goal by now seeking an overshoot is all well and good, but if there is deep doubt over reaching even 2 percent, there will be even greater doubt over achieving an overshoot.
Futures suggested the S&P 500 would open 0.4% higher, following a 1.6% climb in the Stoxx Europe 600 and modest moves upward in Hong Kong and Australia. Three of the 17 policymakers said rates should remain steady for the rest of the year.
The 7-3 vote reflected “no” votes from the presidents of three regional Fed banks – Esther George of Kansas City, Loretta Mester of Cleveland and Eric Rosengren of Boston.
“This seems to have been one of the most divisive FOMC meetings in recent memory”, Ashworth said. In the end, most Fed watchers think the next rate increase won’t come before December.
The Stoxx Europe 600 Index rose to its highest level in nearly two weeks, while gauges tracking Asian shares and raw-materials prices climbed for a sixth day, after the Fed on Wednesday left interest rates unchanged and scaled back its projections for hikes in 2017 and beyond.
The Fed kept its target rate for overnight lending between banks in a range of 0.25 percent to 0.50 percent, where it has been since it hiked rates in December for the first time in almost a decade.
Other Fed officials, including Vice Chairman Stanley Fischer, made similar observations, seemingly part of a collective signal that a September rate hike was probable if not definite. They tend to represent the views of business leaders in their districts, and they are often perceived as being sympathetic to banking interests and quicker to support increases in interest rates. Brainard’s comments, coupled with a string of weaker-than-expected economic data, led watchers to conclude that there will likely be no rate increase this week.
Investors reacted with scepticism to the shallower rate path projections.
Job growth slowed in August. USA shoppers retreated in August to depress retail sales after four straight monthly gains. The spread gives the bank more cushion to generate profits.
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While the Bank of Japan is likely to struggle longer term to boost inflation and the market may wobble if the Fed decides to raise interest rates in December, for now, at least, “there were no unpleasant surprises”, Mr. Morris said.
