European markets followed the positive lead set in Asia and the US where stocks rallied after the Federal Reserve kept interest rates unchanged on Wednesday, despite hinting of a hike later in the year.
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The Fed kept its benchmark interest rate unchanged for the sixth straight meeting, saying it needs to see a bit more sign of strength in the US economy.
The decision, at the end of a two-day meeting in Washington, leaves open the question of whether the committee might raise rates when it next meets in October, shortly before the USA presidential election.
It is expected to keep the Official Cash Rate on hold at 2 percent, but also signal that there is likely to be an interest rate cut before the end of the year.
It’s worth noting, however, that three members of the committee – Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren – voted against the decision, preferring to raise the federal funds rate to 0.50% to 0.75% at this meeting.
The Fed’s statement indicated it could support a hike this year, saying “the case for an increase in the federal funds rate has strengthened”, but that it would wait for more progress toward its objectives. A Fed that can wait so the economy can run for a while, or a Fed that can’t wait until it sees “the whites” of inflation’s eyes?
Eswar Prasad, a professor at Cornell University and senior fellow at the Brookings Institution, told Xinhua that “we could see a rate hike at the end of this year” if the United States economy remains strong with good job growth and inflation continues to pick up.
Longer-term inflation expectations kept unchanged at 2.0 percent, alongside longer-run unemployment at 4.7 percent to 5.0 percent.
To further discuss the Federal Reserve’s interest decision, CCTV America’s Michelle Makori spoke with Christopher Vecchio, currency analyst for DailyFX.com and John Hermann, director of U.S. Rate Strategies, Mitsubishi UFJ Securities. The central bank said risks to its economic outlook are “roughly balanced”. Jaime asked. “They say they are, but I’m not so sure how far they can go”.
The Fed increased interest rates for the first time in more than nine years in December 2015, with hopes of breaking with a crisis stance that dates back to the 2008 economic crash.
The Federal Reserve, as expected, didn’t raise interest rates today – but the central bank sent mixed messages about whether the economy is strengthening that sparked fresh criticism of a central bank increasingly seen as indecisive.
“The median projection for the federal funds rate rises only gradually to 1.1 per cent at the end of next year, 1.9 per cent at the end of 2018, and 2.6 per cent by the end of 2019”, Yellen said in a statement.
USA stocks were broadly higher Thursday, helped by a rise in prices for crude oil and other commodities.
And perhaps most critical for some Fed officials, inflation has yet to make significant progress in rising toward the central bank’s 2 percent target range.
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The pullback in the US dollar was likely behind a rise in the yen.
