The Federal Reserve left interest rates unchanged on Wednesday but said near-term risks to the US economic outlook had diminished, opening the door to a resumption of monetary policy tightening this year.
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Meanwhile, Zandi said the Fed “is happy with current market expectations for a December rate hike”, and noted he thinks there is a 30 percent probability of a rate hike at the September meeting, and a 65 percent probability at the December meeting.
A Reuters poll of economists suggested the Fed is most likely to wait until December to raise rates.
Investors see less than a 20% chance of a hike at the September or November meetings.
As recently as May, Fed officials said a rate increase in June or July would be appropriate after a slew of good economic news. On top of that is last month’s Brexit vote, which sent global markets into a temporary panic and is likely to push the United Kingdom into recession in the coming months.
‘Gold is now entangled in a fierce tug of war with USA rate hike expectations and risk aversion from concerns over the global economy’.
Asian stocks climbed to fresh near one-year highs and the Japanese yen weakened on Wednesday as awaited central bank meetings this week that could see fresh stimulus in Japan and provide clues on US interest rates. This would be much easier to handle than a negative scenario, because the Fed could simply raise rates to keep inflation in check – an illustration of the policy asymmetry that arises when interest rates are near zero. The central bank was also affected by Britain’s forthcoming vote on whether to leave the European Union, anticipation of which had rattled investors. Now, though, the pendulum has swung back, especially after the arrival of a reassuring June jobs report and a big rebound on Wall Street. The Standard & Poor’s 500 index was effectively flat, rising 0.7 of a point, or 0.03 percent, to 2,169.18 and the Nasdaq composite rose 12.42 points, or 0.2 percent, to 5,110.05.
That nine-word sentence was the Fed’s way of giving the market a heads-up that the economy is holding up fine despite Brexit and a brief slowdown in jobs and economic growth, and that rate hikes are still under consideration for some time this year.
According to Commerzbank, gold would probably drift lower if that is the case but the German broker also points out that China has started to import the metal again.
The seasonally adjusted Markit Flash US Manufacturing Purchasing Managers’ Index (PMI) rose from June’s reading of 51.3 to 52.9 in July, the highest level in a year, pointing to a solid improvement in overall US business conditions. In the spring, consumers boosted spending at the fastest pace in a decade. Still, the risks of raising rates again too soon and possibly choking off economic activity may seem greater to the Fed than the risks of waiting longer.
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Ms. Yellen has repeatedly cited uncertainty-over inflation, growth, the global economy and the future path of rates-for keeping the Fed on hold. Please see our terms of service for more information.
