Yellen said the Fed is trying to “decide what the best policy is to foster price stability and maximum employment to manage the variety of risks that we see as affecting the outlook”.
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Asian shares rose, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 1.2%.
However, a slowdown in global economy since the start of this year and other global financial risks have made Fed policymakers cautious and hold off on any further rate hikes. At least three of the top officials – Esther George, Loretta Mester and Eric Rosengren – wanted to raise rates.
“Even if they do raise rates in December, the trajectory of hikes is starting to come down, and that’s giving stocks a bit more of a bid”, said Bill Schultz, who oversees US$1.2 billion as chief investment officer of McQueen, Ball & Associates Inc, referring to the Fed. ‘That message was important, as markets have lately excessively discounted the Fed’s willingness to move rates at all’.
The Fed in December signalled that four rate increases were likely this year, but that was scaled back in March due to a global growth slowdown, financial market volatility and concerns about tepid USA inflation.
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 USA inflation.
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”.
The Fed raised rates for the first time in almost a decade in December but weak economic data and global uncertainty have prevented further rate increases. Most market participants expect the Fed to raise rates in December. Australia’s S&P/ASX 200 rose 0.6 percent to 5,404.50.
State Street head of multi-asset for North America Lee Ferridge says the FOMC “lay the groundwork for a move before year-end” with the majority of Fed members stating they expect a rate hike before year-end.
“We judged that the case for an increase has strengthened but decided for the time being to wait”, Yellen told a news conference.
The central bank has appeared increasingly divided over the urgency of raising rates.
Retail sales fell 0.3 percent in August, the first decline in March.
The world’s biggest central bank has opted to “wait for further evidence of continued progress toward its objectives”.
And while the Philippines central bank held its benchmark rate steady on Thursday, it is an odd man out in the region. “December is their last chance to move this year”, said Brian Edmonds, head of rates trading at Cantor Fitzgerald in NY.
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Bank of Japan Governor Haruhiko Kuroda announced two notable changes-officials will target inflation above their previous target of 2.0 percent and will establish a floor for the 10-year Japanese Government Bond yield.
