The Federal Reserve kept its benchmark interest rate unchanged for the sixth straight meeting Wednesday, saying it needs to see a bit more sign of strength in the U.S. economy.
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‘They clearly indicated that the central bank continues to move down a deliberate path of policy moves and maintains each FOMC meeting as a potentially “live” event regarding potential rate change, ‘ he said.
It added that its rate-setting committee had decided against raising rates “for the time being”, until there was more evidence of progress toward its employment and inflation objectives.
Stocks posted solid gains on Thursday as investors, comfortable that the Federal Reserve will keep interest rates low, bought up stocks that pay big dividends.
The Fed’s next scheduled meeting is November 2, just six days before the presidential election.
We asked two scholars and former Fed officials – Mark Sniderman, an executive in residence at Case Western Reserve University who was chief policy officer at the Cleveland branch of the central bank, and Emory University’s Sheila Tschinkel, who was director of research in Atlanta – whether it was the right call. What was unusual this time was that the result drew dissenting votes from three members – the most dissents in almost two years. But before I get to that, two important points emerged from the FOMC’s statement. However for 2018 and 2019, Citi forecasts only two hikes a year (June and December), which would leave the federal funds rate at 1¾ and 2¼ percent by end-2018 and end-2019, respectively.
If the Fed hikes rates, USD will soar and finally cause USD/JPY to gain in value.
Viewed from a historical perspective, the case for a hike now is quite appropriate. 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. The technology giant’s stock rose 71 cents, or 1.2 percent, to $57.54.
The U.S. dollar rose to the lower 101 yen range Friday morning in Tokyo, buoyed by speculation that the Bank of Japan may take further monetary easing steps. In other words, the market axiom, “lower for longer” is firmly in play so long as traders and investors are concerned. They are all pie in the sky stuff and below the long-run interest rate forecast. That’s most likely to come when the policymaking Federal Open Market Committee meets in December. That’s a problem monetary policy is not created to solve.
This has evidently failed and instead a period of “secular stagnation” has set in, that is, permanent low growth and disinflation.
Citi assumes a slower pace of U.S. interest rate “normalization”. That’s where it’s been since last December when the Fed lifted the rate a quarter of a point from near zero – where it had been left for seven years as the central bank tried to support growth coming out of the Great Recession. “With “yield curve” control, we can achieve declines in real interest rates that are most desirable for the economy”.
While the BOJ is expected to make negative interest rates the centerpiece of a new policy framework, analysts are divided on what new measures it will unveil even as it grapples with concerns that it is reaching the limits of its unconventional policy making. It pushes people into risky investments as they search for earnings, and it creates pressure on pension funds and the like.
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“This is supportive of rates in core emerging markets, and lowers the hurdle for emerging market central banks to ease policy”, Citi analysts said in a note.
