Stock markets, despite some weakness on Friday, were also on course for their biggest weekly gain in two months after a week of central bank meetings that left investors still unconvinced of US policymakers’ intent to put an end to an era of ultra-low interest rates. However, the central bank said it wants to see more improvement in the job market before raising rates.
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The Federal Reserve kept its key interest rate unchanged Wednesday but signaled it is likely to raise it later this year. Pointing to the “roughly balanced” language in the Fed statement, she said, “this statement basically increased the chances of a December rate hike”.
“The case for an increase in the federal funds rate has strengthened”, the USA central bank said in a statement following a two-day policy meeting.
BONDS AND CURRENCIES: U.S. government bond prices rose. FED chair Yellen said the economy can still grow at the current rate. European markets followed Asia’s lead, with Britain’s FTSE 100 climbing 1.3 percent and Germany’s DAX and France’s CAC 40 both jumping nearly 2 percent ahead of what was expected to be a third day of gains in NY.
“The US dollar decline has more weeks to go, we think about two months”, Hans Redeker, Morgan Stanley’s chief global currency strategist in London, told Bloomberg.
However, Yellen made it clear that a rate hike would happen before the end of the year.
TAKE A PICTURE: Shares of GoPro, the activewear camera company, rose $1.14, or 8 percent, to $16.11 after the company announced updates to its Hero camera products.
“A weaker dollar and no hike in rates from the Fed should have given the gold and silver markets a lift, but seeing the Fed also suggest that the USA economy had further to run before seeing pressure from inflation would seem to add to the gold bulls’ short term case”, The Hightower Report said. Inflation has remained below that level for more than three years.
For the first time in almost two years, there were three dissents to the Fed’s statement Wednesday. Regional Fed presidents including Philadelphia’s Patrick Harker, Atlanta’s Dennis Lockhart and Cleveland’s Loretta Mester will address a panel discussing the central bank’s role and responsibilities in Philadelphia on Friday. Most investors are betting the Fed will wait till December to raise rates once again.
Since lots of consumer and business rates are linked to the federal funds rate, holding steady means auto loans, many variable rate mortgage loans, the prime rate for business lenders – all those rates won’t go up either.
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Del Greco added that the low interest rates have also been a positive for commodities, including oil, gold and metals. They believed that the Fed, starting with a late-August speech by Chairwoman Janet Yellen in Jackson Hole, Wyo., was preparing investors for an imminent increase.
