The U.S. Federal Reserve cited concerns over the global economy and financial market volatility among the factors that played a role in keeping interest rates near zero.
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A gauge of emerging-market currencies climbed as much as 0.8 per cent from Thursday’s low following the Fed announcement.
ASIA’S DAY: Japan’s benchmark Nikkei 225 slipped almost 2 percent to 18,070.21, as the dollar weakened against the yen, sending export issues lower.
German bund futures opened 106 ticks higher at 154.76.
And since investors were betting in certain markets that the Fed would not raise rates, it made some sense that they did not react strongly when they got what they expected.
On the economic front, in the week ending September 12, the advance figure for seasonally adjusted initial jobless claims fell 11,000 from the previous week’s unrevised level to 264,000, below market consensus of 275,000, the US Labour Department said Thursday.
Interest rates have been near zero since 2008, when the Fed drastically cut rates in response to the financial crisis and Great Recession. The two-year Treasury note, which would be more heavily impacted by higher short-term interest rates, had even an even more dramatic move, dropping to 0.68 percent from 0.80 percent.
Commodity prices were relatively well-supported, with USA crude futures at $46.77 per barrel, down slightly from Thursday’s high of $47.71 but still up nearly 5 percent on the week.
A growing number of economists, including those at Morgan Stanley and Barclays, are now wondering whether the Fed will raise rates at all this year, given its concerns over growth and market volatility, as well as the strength of the dollar.
Financial markets, which have constantly forecast a far slower pace of policy tightening than the Fed’s projections, were less convinced. “The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term”, the statement said.
“The question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect”.
People at a Federal Reserve conference center in Washington listen Thursday while Fed Chair Janet Yellen, below right, speaks about the central bank’s decision to keep interest rates at historic lows.
The Australian dollar edged up 0.1 percent to $0.7182 with investors focused on parliamentary testimony by Reserve Bank of Australia Governor Glenn Stevens. This means that Fed may take a call on raising rates anytime between now and end of December. Britain’s FTSE 100 dropped 0.6 percent to 6,153.03.
But the Fed maintained its bias towards a rate hike sometime this year, while lowering its long-term outlook for the economy.
Matt Maley, an equity strategist at Miller Tabak & Co LLC in New York, said that with the decision now out of the way, traders “are going to start focusing more on the problems that caused the correction in August, which is weakness in China and other emerging markets and a rough time on the earnings front”.
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The Fed has a few ways of trying to achieve that balance, but arguably the most important is setting a target for the interest rate that banks pay to borrow money from each other overnight: the federal funds rate.
