Investors’ focus now shifts to the U.S. Federal Reserve policy decision later on Wednesday.
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The 7-3 vote reflected “no” votes from the presidents of three regional Fed banks – Esther George of Kansas City, Loretta Mester of Cleveland and Eric Rosengren of Boston. Having recognized an unfavorable market response and little economic traction to its previous introduction of negative rates (January) and upgrade to QE (July), the BoJ made a decision to shift its focus away from surprise escalations.
The German Bunds yield also fell about 10 basis points to minus 0.093 percent from plus 0.005 percent on Wednesday. “Any nasty political shock or any signs of further weakness in the economy could delay the next interest rate increase even longer”. A Fed statement after its latest policy meeting said the US job market has strengthened and economic activity has picked up but business investment is soft and inflation too low. Some analysts thought the central bank would take further steps to bolster economic growth.
The Fed has held its target rate for overnight lending between banks in a range of 0.25 per cent to 0.50 per cent since December, when it raised borrowing costs for the first time in almost a decade.
FED WATCH: The Federal Reserve kept its key interest rate unchanged but signaled it is likely to rise before year’s end. “The forecasts and the statement suggest a rate hike is increasingly likely in December”, she said.
Typically, nearly all its officials vote in line with Fed Chair Janet Yellen.
“But if it sees the presidential election as leading to intense uncertainty in the market, that could be a factor that will lead to delay rate increases until after the election in December”, he said.
THE QUOTE: In the last two weeks, a few Fed leaders gave different opinions on whether the central bank should raise interest rates now.
The Fed meeting book-ended a day which began with the Bank of Japan embarking on an innovative new stance of targeted long-term bond yields to fight disinflation and get its economy moving. Doves tend to be wary of raising rates quickly for fear for undermining growth. Yellen said the slowdown in the global economy warranted caution.
Slow and slowing growth is a global problem-especially in the world’s third largest economy, Japan. A manufacturing gauge slid back into recession territory.
In the NY session, U.S. weekly jobless claims for the week ended September 17, U.S. existing homes sales data for August, U.S. FHFA house price index for July, U.S. leading indicators for August as well as Eurozone consumer confidence index for September are slated for release. While the chances of a hike are marginal this time, investors will comb the central bank’s statements for clues about a December hike.
In a statement from the FOMC, the central bank expressed confidence in United States economic growth, but not enough to make a move this month. The ECB this month left its aggressive stimulus measures unchanged and urged European governments to spend more on infrastructure and to enact reforms to make their economies more efficient and business-friendly.
The “new framework” to strengthen monetary easing also commits the Bank of Japan to pushing past the 2 percent inflation target it set more than three years ago.
The Bank of England also made a decision to keep British rates unchanged last week. In the past year, market volatility and Brexit have given the Fed pause.
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“We had a rich, deep, serious, intellectual debate about the risks and the forecasts for the economy, and we struggled mightily with trying to understand one another’s points of view”, she said. For instance the unemployment rate has remained a 4.9 percent for the past 3 months, and that’s up from 4.7 percent in May.
