For the Fed, no policy action is expected but the market will be hyper-sensitive to any guidance on when it might deliver its next hike in interest rates.
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The US central bank, however, noted that the United States continues to face risks from an uncertain global economy.
At 9:37 a.m. ET, the Dow Jones industrial average .dji was down 16.37 points, or 0.09 percent, at 17,235.16, the S&P 500 .spx was down 1.58 points, or 0.08 percent, at 2,014.35 and the Nasdaq Composite .ixic was down 5.94 points, or 0.13 percent, at 4,722.73.
The Fed had adopted a cautious approach at its last policy meeting in January, amid a selloff on financial markets, weaker oil prices and falling inflation expectations. But that’s still well below the Fed’s target. “In this role, the Fed needs to let inflation in the USA surge to offset disinflation in the rest of the world”. Australian 10-year yields fell eight basis points to 2.55 percent. Their median estimate is that the Fed’s benchmark rate will hit 3 percent by the end of 2018.
It also said that inflation would likely remain very low at 1.2 per cent by the end of the year, far shy of the Fed’s 2.0 per cent policy target.
As of 12.27pm, the Straits Times Index was up 1.04 per cent or 29.52 points to 2,873.73, after climbing as high as 2,883.39. Furthermore, the unemployment rate – at 4.9 percent in February – is near the level many Fed officials believe represents full employment.
“The market was taken by surprise after the Fed scaled back its projections for the rate hike and by dovish comments from Yellen”, remisier Alvin Yong said, referring to Fed chairman Janet Yellen. “The Federal Reserve has inspired Asian markets today”, Chris Weston, Melbourne-based chief market strategist at IG, wrote in a commentary.
The FOMC forecast indicated expectations for just two rate hikes this year; in December, it pointed to four increases.
But the turmoil in financial markets and a slowdown in global economy since the start of the year has raised increased concerns about the strength of the USA economy, forcing Fed policymakers to hold off on any further rate hikes since then. Oil prices are rising on reports that major energy-producing nations will hold a new round of talks about curbing oil production. Though one of the Fed’s main goals is to prevent runaway inflation, it wants to see inflation rise more than it has in recent years to be sure the economy is healthy enough to handle higher rates.
Gold gained almost 3.3% to $1,270 an ounce, spurred by a weaker dollar and the prospect of lower rates. Meanwhile, construction on new houses rose in February to a five-month high, led by the biggest increase in single-family units in nine years.
In a press conference, Fed Chair Janet Yellen said it remained to be seen whether a recent firming in USA core inflation, which excludes volatile energy and food components, would be sustained. Asian stocks were also mixed, as Japan’s benchmark Nikkei 225 slipped 0.8 percent and South Korea’s Kospi added 0.3 percent.
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The euro was near $1.1244, its highest since March 15.
