There were fears that a hike in USA interest rates could trigger a flight of debt and equity investments away from emerging markets like India. Fed Chair Janet Yellen said USA growth was looking stronger and rate increases would be needed to keep the economy from overheating and fueling high inflation. It’s really brought an environment that is beholden to what the central banks are going to do.
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Energy companies followed oil prices higher. Economists believe policymakers would avoid a rate hike in November in part because the meeting falls just days before the US presidential election.
Stocks posted solid gains on Thursday as investors, comfortable that the Federal Reserve will keep interest rates low, bought up stocks that pay big dividends.
“Unemployment this low may well have the desirable effect of bringing more workers into the labor force – but, unfortunately, only temporarily”, said Rosengren. 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.
The Fed last raised rates in December, which was the first time rates had gone up in almost a decade, following the 2008 financial crisis and recession.
The Fed’s updated projections released Wednesday showed that policymakers expected the federal funds rate to rise to around 0.625 per cent at the end of 2016, implying one rate hike this year, down from two estimated in June. They also lowered expectations for future interest rate hikes, expecting only two hikes annually in the coming two years.
Still, Yellen appeared to tip toe on the case for and against a rate hike.
Potentially, analysts said, the rate increase may come during committee’s December 13-14 meeting, since the one in November comes just ahead of the U.S. presidential elections.
Brent crude, used to price worldwide oils, rose 95 cents (£0.73), or 2.1%, to 46.83 dollars (£36.07) a barrel in London.
The dissents from those wanting a hike suggested to some economists that pressure was building.
The Fed kept rates steady at 0.25% overnight as was widely expected by global markets‚ but an increase in December was not ruled out.
True, the US economy has not been performing up to its ability, and that has kept the Fed on the sidelines far longer than the central bank had anticipated for rate hikes this year.
While inflation is still below the Fed’s 2% target, it has started showing signs of improvement. With the central bank confirming that it will raise interest rates slowly, bond yields dropped and shares of utility and phone companies rose. The 30-year yield rose to 2.460 percent from 2.435 percent.
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The Fed has policy meetings scheduled in early November and mid-December.
