“Our first take on this is that it probably leans slightly more dovish, relative to expectations”, said Tom Porcelli, chief USA economist at RBC Capital Markets in NY.
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Giving a picture of the USA economy that was less bullish than many had expected, the Fed still forecast continuing hikes to the benchmark federal funds rate this year, but at a slower pace than foreseen in December. And it pulled back sharply from a December prediction that the rate would rise by 1 percentage point this year.
“The earliest the Fed will be hiking is June and so it’s too early to be selling Treasuries”, Westpac’s McColough said.
The dollar weakened against most currencies as the Fed stayed put on interest rates and expressed the probability of only two interest rate hikes this year instead of four, which was projected earlier.
Most Fed watchers think the central bank wants more time to assess the financial landscape.
Traders now see about a 54 percent chance of a rate hike in September, based on futures contracts traded at CME Group Inc, down from 70 percent before the Fed ended its two-day policy-setting meeting.
In a news conference Wednesday afternoon Yellen said global economic and financial developments continue to pose risks to the USA, and revised down her path for further interest rate increases.
The US dollar fell against both the euro and the yen in the wake of the statement.
The American dollar has fallen a staggering 320 points since yesterday’s U.S. Federal Reserve rate announcement.
As a result, Fed officials are now forecasting that they will raise rates more gradually this year than they had envisioned in December. Inflation is expected to remain low in the near term, in part because of declines in energy prices, but will rise to 2 percent as the temporary effects of declines in energy and import prices dissipate and the labor market strengthens further-so the Fed posited.
After months of volatility on global markets coupled with continued steady domestic economic growth, the Fed’s statement struck a half-empty half-full tone that reflected the broad difference within its ranks. The officials now foresee two, rather than four, modest increases in the Fed’s benchmark short-term rate during 2016.
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Inflation has picked up in recent months. The index stood at 96.837 immediately prior to the statement, sliding almost 1.3 percent in the time between the statement’s release and the end of the Fed chair’s remarks. He said, essentially, there’s no reason for rates to remain this low.
