However, Fed Chair Janet Yellen said the economy continues to broadly show progress.
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FOMC also reduced its expectations both for economic growth and inflation this year, though the statement said “the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year”.
ANALYST’S TAKE: The Fed said the case for a rate hike “has strengthened, but they will need more evidence of continued progress towards its objectives”, said Margaret Yang of CMC Markets in a report. Three members of the committee favored raising rates by 0.25 percent this month.
“The economy has a little more room to run than might have been previously thought”.
Another central bank struggling with too-low inflation is the Reserve Bank of New Zealand and it renewed a pledge to lower rates again on Thursday even as much of the domestic economy is growing briskly. Pointing to the “roughly balanced” phrasing, she said, “this statement basically increased the chances of a December rate hike”.
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. Wednesday, though, two more board members joined George in the minority – Loretta J. Mester and Eric Rosengren, Federal Reserve Bank presidents in Cleveland and Boston, respectively.
“Clearly the markets view the Fed’s inaction as favorable. but if you read between the lines, the Fed is concerned about the strength of the economy”, said Matt Schreiber, chief investment officer at WBI Investments in Red Bank, New Jersey. However, it did hint that a rate hike is possible in December. And the yield on the 30-year Treasury bond, which is the most sensitive to long-term growth and inflation expectations, tumbled 11.2 basis points over the week and 1.4 basis point on the day to 2.337%, also marking a two-week low.
Job growth slowed in August. The major US reports include the Conference Board’s Consumer Confidence report on Tuesday.
“The Fed and central banks worldwide have been providing investors with a sense of calm and complacency”.
One day earlier, the Bank of Japan announced that it left its negative interest rate on certain commercial-bank deposits unchanged and announced to introduce a ten-year interest-rate target.
As reported by Reuters the Fed trimmed its expected equilibrium interest rate to 2.9% from 3.0% (Reuters had reported it could fall to 2.75%).
Although markets were closed in Japan for a holiday, Thursday’s rally in bonds extended to Europe, where the yield on the 10-year German bond dropped to minus 0.093% from just above zero percent on Wednesday, according to Tradeweb.
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“The fact that the flattening of the yield curve has gotten to a point where it has elicited a policy response could mark the beginning of the end of quantitative easing”, said Michael Metcalfe, head of global macro strategy at State Street Global Markets.
