Shortly after the Fed began raising rates last year-for the first time in over a decade-turmoil in United States markets and uncertainty overseas convinced many officials to delay further rate increases.
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Yellen agreed that the case for an increase in rates was stronger, but that not only was the economy not “overheating” now, but there was actually a “little more room to run”. “December is their last chance to move this year”, said Brian Edmonds, head of rates trading at Cantor Fitzgerald in NY. Last December, the Fed had signalled four rate increases during 2016, but that did not happen.
Three members of the policymaking committee dissented from the decision.
“I would expect to see [a rate increase] this year if we continue on the current course”, she said, referring to if improvements in labor market conditions continue and the economy avoids any major risks.
As the Fed has hesitated to raise rates, there is a growing debate about its credibility.
In the USA bond market, yields fell as the Fed lowered its projection for interest rate levels needed to support expansion.
Stocks are moving higher on Wall Street in midday trading.
European stock markets rallied Thursday, after solid gains in Asia, as the U.S. Federal Reserve opted against lifting interest rates – but signaled action later this year.
Indeed, the committee said that near-term risks to the economic outlook “appear roughly balanced”, which is more-or-less the same sort of lingo the Fed used in 2015, before hiking rates toward the end of the year. That means policymakers think the economy is about as likely to outperform forecasts as to underperform them. It expects the economy to expand just 1.8 percent this year and by an nearly equally sluggish two percent in both 2017 and 2018.
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Asian stock markets held fairly steady Friday, holding on to gains in the week driven by USA and Japanese central bank policy decisions that fueled investors’ belief that low rates will be around for a few more months. “Still, a rate hike in December looks likely, with most officials expecting higher rates by year-end, even though rates should rise more slowly in 2017 and 2018 than officials had projected earlier this year”. According to Chicago Mercantile Exchange’s FedWatch tool, there is a 59.3% chance of a change in interest rates at the December meeting, a touch higher than the previous day’s probability. Economists believe policymakers would avoid a rate hike in November in part because the meeting falls just days before the US presidential election.
