The central bank characterized the near-term risks to its economic outlook as “roughly balanced”. In the general statement, the Fed expressed support for the United States economic situation, strengthening the belief that the Fed will indeed raise the interest rates in December. “The forecasts and the statement suggest a rate hike is increasingly likely in December, if conditions don’t change before then”, Warne said.
Advertisement
But there were also three votes for a rise in rates on the Fed’s policymaking committee and that helped bring the dollar back into positive territory on Thursdsay, up 0.4 percent from Wednesday’s close in NY at 100.73 yen.
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. At the same time, she added she did not “want the economy to overheat” and the case for a rate increase “has strengthened”.
He also isn’t taking November off the table for a possible hike, even though there is no news conference scheduled. The BoJ said it will continue asset purchases at a rate of about 80 trillion yen ($787 billion) a year.
Fed officials also marked down their estimate of the long-run level of short-term rates to 2.875 percent from 3 percent in June.
Regardless of when the Fed moves next, dollar bulls face the prospect of the slowest and shallowest tightening cycle in recent history, based on the market for overnight index swaps, which reflect expectations for the fed funds effective rate. They believed that the Fed, starting with a late-August speech by Yellen in Jackson Hole, Wyoming, was preparing investors for an imminent increase.
Investors will have to wait another month, at least, for higher interest rates.
The chances of a rate hike in September sat at 18% heading into the day’s meeting, according to CME Group fed funds futures. All wanted the Fed to raise its key rate at this meeting. Doves tend to be wary of raising rates quickly for fear for undermining growth.
Fed Chair Janet Yellen was among the seven who voted to wait. Homebuilders had slumped Tuesday after the US government said construction of new homes slowed down in August. A manufacturing gauge slid back into recession territory.
Meanwhile, the pound sank below the $1.30 level again after British Foreign Minister Boris Johnson said London could officially trigger the country s exit from the European Union early next year.
Yellen pointed out that over the past four months, about 180,000 jobs have been created each month in the US.
These were signs, too, that the economy might be struggling to accelerate after three straight quarters of anemic growth. The long-term expectation was only slightly lower at 2.9% from 3.0% previously.
Advertisement
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Jerome H. Powell; and Daniel K. Tarullo. So far there have been no rate hikes. none. Those numbers are little changed following the meeting’s results, though consensus has clustered around the 0.5-75% rate, at 51.9%. The eurozone economy is growing slowly, but inflation remains well far below the ECB’s 2 percent annual target.
