Stocks traded lower by midday Friday as a two-day relief rally over the Federal Reserve’s patience on raising interest rates began to deflate.
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The Fed said in a statement ending its latest policy meeting Wednesday that the US job market has continued to strengthen and economic activity has picked up. The S&P is up 6.5 per cent for the year. On Wednesday, Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren dissented on the policy statement, saying they favored raising rates this week. Second, the FOMC noted that “the Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of further progress toward its objectives”. This is below the 70% level that the Fed would ideally like to see and shows the market is yet to be fully convinced of a December hike. The Fed chair always stresses that the estimates are based on 17 individual projections and do not represent any official central-bank target.
Fed Chair Janet Yellen had a simple explanation for why the Fed didn’t raise rates: the economy can still grow without hurting itself.
The Fed’s next meeting is just a week before the November elections, and most analysts think it wouldn’t want to raise rates so close to when voters go to the polls. The median of members now only sees two rate hikes next year, while the forecast for the longer-run neutral rate came down a tick to 2.9%. The Fed now expects two rate increases in 2017 and two in 2018, down from three each year in previous forecasts.
Facebook FB.O was down 1.5 percent at $128.11 after the WSJ reported the social media giant overestimated viewing time for video ads by 60-80 percent for two years. In practical terms, that would mean the committee would likely bump rates up at its December confab, as it would be unlikely to make a move at its next scheduled gathering, set for the week before the November 8 presidential election. NYMEX continuous gold prices have since jumped more than 23% in 2016 through the end of August where it settled at $1,311.
Mr Hewson added: “This paragraph appears to have been added to buy time as Fed policymakers try to make sense of the apparent disconnect between a resilient jobs market and a slowing economy”.
Changes to the Fed’s statement could hold clues.The July statement said risks to Fed forecasts had “diminished”.
The Fed has said repeatedly that it expects inflation to rise to 2 percent within a couple of years as the effects of falling oil prices and a stronger dollar fade. Only 10 of those members actually vote on the Fed’s decisions. A manufacturing gauge slid back into recession territory.
“Yields will remain at historically low levels for some time”, Bill Irving, co-manager of Fidelity Government Income Fund said, according to the transcript of an interview on his firm’s website.
The U.S. Federal Reserve is charged with the task of setting the country’s monetary policy.
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These were signs, too, that the economy might be struggling to accelerate after three straight quarters of anemic growth. Does it foresee inflation rising meaningfully toward its 2 percent target? It was the first time the central bank had been so explicit in hinting when a rate hike might occur. Hours before the Fed scaled back tightening plans Wednesday, Japan tweaked its stimulus program, bolstering bets Europe will keep its accommodative stance.
