US stocks edged higher on Wednesday, after the Federal Reserve announced it would leave benchmark interest rates unchanged.
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“Our decision does not reflect a lack of confidence in the economy”, Fed Chair Janet Yellen said at the start of her press conference, Bloomberg reported. Yellen said the slowdown in the global economy warranted caution.
Breakout likely as US Fed keeps rates unchanged: Signalling a modestly accommodative policy stance the US Federal Reserve on Wednesday maintained a status quo on interest rates. There were fears that a hike in USA interest rates could trigger a flight of debt and equity investments away from emerging markets like India.
At 2:00 pm ET, the Fed announced that it would leave interest rates unchanged for a sixth consecutive meeting.
Wednesday’s announcements helped soothe recent investor concerns that the age of cheap cash – which has supported markets for years – could be coming to an end, fueling talk of an equity correction.
In a statement following a two-day policy meeting, the US central bank signalled it could tighten monetary policy by year-end as the labor market improved further, but Fed policymakers cut the number of rate increases they expect this year to one from two. Before the rate decision, traders saw about a 58% chance of a December rate hike, and were betting on another hike in 2017.
The Fed expects the United States economy to grow 2% next year and the year after that, although the projection for the current year is a tad lower at 1.8%.
Indeed, the so-called dot plot that shows individual members’ expectations indicated notably wider dispersion than the June meeting.
“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”. This basically means that the Indian and other emerging markets could see some buoyancy for a while, rather than being range-bound.
The Federal Reserve is still waiting for the right moment to raise interest rates.
Inflation targeting: Overall, consumer price inflation was less than 1 per cent over the 12 months ending in July, which is still short of the Fed’s 2 per cent objective.
The Fed said Wednesday the case for raising rates from their historic lows had strengthened, but said it wanted to see more improvements in the job market.
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Meanwhile the BoJ’s effort to demonstrate they were serious about stimulating inflation while holding 10-year bond yields from going negative kept the yen steady. “We do not discuss politics at our meetings”. Spot gold was up 1.2 per cent at $US1,330.08 an ounce.
