Announcing the freeze on Wednesday following a two-day policy meeting, U.S. Federal Reserve Chairwoman Janet Yellen said a decision on the timing of the next hike will be made cautiously as economic indicators are mixed.
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THE United States Federal Reserve’s decision on Wednesday (Thursday in the Philippines) to keep interest rates unchanged is expected to give some fresh energy to the Philippine financial markets.
The spot price has risen 8% this month alone and closed around US$1,308 following Fed chair Janet Yellen’s comments that “vulnerabilities in the global economy remain”, with a possible Brexit now also part of its thinking.
Policymakers have been anxious about potential weakness in the USA labor market and the possibility of financial turmoil if Britain votes next week to leave the European Union. The dollar eased 0.2 percent to $1.1265 against the euro, and US Treasury bond yields edged lower, the 10-year bond falling to 1.60 percent from 1.61 percent.
The Dow Jones industrial average, which was up more than 55 points, or 0.3%, before the Fed’s 2 p.m. rate announcement, closed down 35 points, or 0.2%.
Financial markets all but priced out a rate increase this year after the Fed statement and U.S. short-term interest rate futures contracts rose.
The Fed calls that “highly accommodative”, which means it is expected to make it cheaper and easier for companies and families to borrow the money they need to buy new equipment or houses.
Of course, China’s slowing economy and currency moves, along with low oil prices, remain long-term risks for the Fed’s outlook. They now expect just 2 percent growth both this year and next year, down from their previous forecast of 2.2 percent for this year and 2.1 percent for 2017.
“Some of the factors weighing on economic growth had been expected”, Yellen said.
“We are quite uncertain about where rates are heading in the longer term”, Ms Yellen told a news conference after the rate decision.
“Although the unemployment rate has declined, job gains have diminished”, the Fed said.
“The stance of monetary policy remains accommodative, thereby supporting further improvement in labour market conditions and a return to 2 percent inflation”, it said in a statement at the end of its two-day policy meeting on 15 June.
Sohn foresees just one Fed rate hike this year, probably in September, with the central bank then moving to the sidelines in the closing weeks of the presidential race.
The majority of the 17 still expect two rate hikes this year, but there’s little appetite to go beyond that.
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“The Fed no longer sees itself approaching its longer-run rate estimate by 2018”, commented Neil Dutta, head of Renaissance Macro Research.
