The Federal Reserve, like many other central banks, is an independent government agency in the US and Yellen herself countered claims on Wednesday following the bank’s decision to keep interest rates on hold.
Advertisement
Longer-dated U.S. yields fall to two-week lows * Yield curve flattens after Fed hints fewer rate hikes * U.S.to sell $11 bln 10-year TIPS at 1700 GMT * U.S. jobless claims unexpectedly fall to 2-month low (Recasts; updates throughout, adds quotes) By Richard Leong NEW YORK, Sept 22 (Reuters) – U.S. Treasury yields declined on Thursday with benchmark yields hitting near two-week lows on revived bets the Federal Reserve would raise interest rates slowly due to weak economic growth and inflation stuck below its 2-percent goal.
That could have been expected to push the greenback higher, said Christopher Vecchio at DailyFX.
The Fed’s next meeting will occur just a week before the November elections, and many analysts think it wouldn’t want to raise rates so near Election Day. The move officially ended the Fed’s zero interest rate policy which commenced in December 2008, the immediate aftermath of the recession.
That points to less divergence with other key currency rates, hence the selling bias on the dollar.
At the same time, policymakers cut the number of rate increases they expect this year to one from two previously, according to the median projection of forecasts released with the statement.
But it noted that inflation remains slower than the Fed’s desired pace, and it said, “Near-term risks to the economic outlook appear roughly balanced”.
“While the Federal Reserve held rates unchanged, the highly unusual 7-3 vote points to the depth of its policy dilemma and makes a December hike more likely”, said Mohamed El-Erian, chief economic adviser at Allianz. Most investors are betting the Fed will wait till December to raise rates once again. It has 12 voting members, including Yellen.
At the beginning of this year, its leaders projected raising rates four times – but that hasn’t happened either. Prices for fed funds futures contracts suggested investors continued to see just better-than-even odds of a hike at the December policy meeting, and nearly no chance of an increase in November. An index that tracks the services economy, where most Americans work, fell to its lowest level since 2010.
Analysts expressed doubt, though, that the Bank of Japan’s new target would change the mindset of shoppers and businesses long used to a stagnant economy and flat or declining prices.
Advertisement
The central bank has appeared increasingly divided over the urgency of raising rates.
