The Federal Reserve made a decision to leave the federal funds rate unchanged between 0.25%-0.50% at the end of its two-day meeting today in what was the most divided vote since December 2014.
Advertisement
In voting to hold rates at 0.25% – 0.5% the Federal Open Market Committee surprised few people, and doing so has put the investment spotlight firmly on the 8 November election.
The Fed raised rates for the first time in almost a decade in December but weak economic data and global uncertainty have prevented further rate increases.
“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate – the federal funds rate (interest rate) is likely to remain, for some time, below levels that are expected to prevail in the longer run”. Importantly, at the same time, you hear that the risks are now “roughly balanced”, while they talked about being “on hold for the time being”.
The Fed signaled plans to keep rates lower for longer on Wednesday. On Wall Street, the future for the Dow Jones industrial average was up 0.1 percent while the Standard & Poor’s 500 was unchanged. The yield on the U.S. Treasury 10-year note fell to 1.63 percent from 1.67 percent the day before.
Fed Chair Janet Yellen did say United States growth was looking stronger and rate increases would be needed to keep the economy from overheating and fuelling high inflation.
Oil prices rallied to a two-week high, helped by USA government data that showed a surprising crude inventory drop. It said it will continue trying to stimulate the Japanese economy until inflation is higher than 2 percent a year, but it didn’t reduce interest rates any further.
The Fed’s decision to keep rates low also caused bond prices to rise and the USA dollar to fall against other major currencies, which in turn helped boost prices of commodities, which are denominated in dollars.
S&P 500 e-minis were up 8.75 points, or 0.41 percent, with 167,535 contracts traded.
The BOJ had said on Wednesday it would seek to guide the 10-year JGB yield around zero per cent in an unprecedented move, but investors were left wondering exactly where and how the BOJ would be able to exert control on the bond yield.
Apple rose 0.9 per cent to $114.56 after Nomura and RBC raised their price targets.
The dollar index dropped 0.4 per cent on Thursday, and was on track to mark the second straight day of losses after the Fed’s decision. Markets in Japan were closed for a holiday.
Microsoft was the top influence on the S&P and the Nasdaq, rising 1.2 percent after announcing a $40 billion share buyback program.
Advertisement
The dollar fell on the weaker projections as the new dot plot from the Fed overshadowed the overall hawkish tone of today’s FOMC statement which potentially paves the way for a December rate rise.
