The New Zealand dollar is up by 0.3% to 0.7317 against USA dollar after the country’s reserve bank held its key rate at 2.00%, as expected. Most participants also marked down their estimates for the longer-run normal federal funds rate, with the median now at 2.9 per cent.
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ANALYST’S TAKE: The Fed said the case for a rate hike “has strengthened, but they will need more evidence of continued progress towards its objectives”, said Margaret Yang of CMC Markets in a report. Japanese markets were closed for a holiday. The Nasdaq composite climbed 44 points, or 0.8 percent, to 5,339. Wells Fargo (WFC), whose CEO faced some harsh questioning from the Senate on Tuesday over its sales practices, fell 1.6%.
However three of the Fed’s rate-setters dissented, voting in favour of an increase. Pointing to the “roughly balanced” language in the Fed statement, she said, “this statement basically increased the chances of a December rate hike”.
The statement added that “the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run”.
Yellen’s answer at Wednesday’s post-meeting news conference was that there is no inflation threat, so there is no hurry; and she said that if the Fed holds off raising rates maybe even more people will find work.
The Fed news has meanwhile sent the USA dollar sliding against the European single currency.
Last December, the Fed signaled that four rate increases were likely in 2016, but that was scaled back in March due to a global growth slowdown, financial market volatility and concerns about tepid US inflation.
“It is becoming clear that central banks around the world see themselves supporting the economy with loose monetary policy while governments remain slow with fiscal reform”, said Lorne Baring, managing director at B Capital Wealth Management. GDP growth had fallen to a tepid 1.1 percent in the first quarter and despite signs of labor-market tightening, the central bank’s 2 percent inflation target was nowhere in sight.
The euro edged up 0.1 per cent to $1.1195, having pulled up from Wednesday’s trough of $1.1123.
The opposition underscored the intense policy debate inside the central bank and a heavily divided Fed over rate hikes.
“The case for a hike had strengthened, Yellen said, but still the consensus to hike was not there”.
The Fed will hold its next two policy meetings on November 1-2 and December 13-14.
Yet the policymakers also displayed confidence the rebound would continue through the second half, and indicated that they foresee one rate hike before the end of the year.
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Real estate companies rose more than the rest of the market, with the newly created real estate component of the S&P 500 up 1.7 percent.
