Federal Reserve Chair Janet Yellen denied allegations from Donald Trump that the Fed is keeping interests rates low to support the Obama administration, saying it is an independent agency.
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In a statement from the Federal Open Market Committee after this week’s meeting, the central bank expressed confidence in economic growth, but not enough to make a move this month, CNBC writes.
In the weeks immediately following the FOMC’s previous meeting in July, speculation was heavy that a rate hike would occur in September. “December is their last chance to move this year”, said Brian Edmonds, head of rates trading at Cantor Fitzgerald in NY. Three of the 17 policymakers said rates should remain steady for the rest of the year. On Wednesday, the dot plot could be revised further to a forecast of just one rate hike during 2016, if, as expected, the Fed doesn’t act this week.
“This is about as close as you can get to raising interest rates, without actually raising them”, Greg McBride, chief financial analyst at Bankrate, wrote in a research note Wednesday, noting the fact that three officials dissented is likely a sign that the group “is getting antsy to raise rates”.
“The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives”.
The press conference, and the committee decision that preceded it, sent repeated signals rate increase remains just around the corner.
The two-day FOMC meeting nevertheless showed the strongest division over policy since December 2014, with three of the 10 voting members arguing for a rate rise now.
On Tuesday, the Bank of Japan held its benchmark interest rate at -0.10% and announced a shift in policy, opting to target the shape of the Japanese yield curve. This relief rally is a sign that investors had previously been highly concerned about a looming USA interest rate hike.
World stocks rose on Wednesday, led by a surge in bank shares, while the yen weakened after the Bank of Japan surprised markets by adopting a target for long-term interest rates. The Fed’s next scheduled meeting is in November, six days before the presidential election, and another will be held in mid-December. An index that tracks the services economy, where most Americans work, fell to its lowest level since 2010. That is about one-tenth of a percent slower than prior expectations. Fed Chair Janet Yellen explained it simply: The nation’s central bank, she said, believes the labor market still has the potential to pull more would-be workers back into the job market, and inflation continues to run below the Fed’s target rate.
At the same time, bonds are also finding support from the Fed, which now nearly certainly won’t raise rates more than once this year.
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Growth this year is now expected to be 1.8%, rather than 2% as predicted in June, and the longer-run growth rate was also trimmed to 1.8%.
