The Federal Open Market Committee dropped a reference to global risks and referred to its “next meeting” on Dec 15-16 as it discussed liftoff timing in a statement released yesterday (Oct 28) in Washington, preparing investors for the first rate rise since 2006.
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The key takeaway from the FOMC statement released on Wednesday was that the US Fed has guided that a December liftoff is very much on the cards but at the same time it stressed that the final decision still remains data dependent.
Senior BI deputy governor Mirza Adityaswara said the Fed’s statement after the Federal Open Market Committee (FOMC) meeting was interpreted as being “more hawkish”, but overall the market consensus was that it was unlikely that the USA benchmark interest rate would be increased this year.
None of which means the Fed is certain to pull the interest-rate trigger in mid-December.
Speaking to Reuters, economists said the Fed was testing the water and trying to subtly hint to the market its intentions, possibly to avoid a taper tantrum similar to 2013. “However, there is more to economics than numbers, so there is still a chance the Fed will move next month”.
At midday in Europe the pan-European FTSEurofirst 300 index was down 0.5 percent at 1,477 points.
Despite the Fed’s apparent willingness to raise rates, many observers believe that increasing too early could jeopardise what is widely still seen as a fragile recovery.
The decision, after the Fed’s latest policy meeting, was approved on a 9-1 vote, with Jeffrey Lacker, president of the Fed’s Richmond regional bank, dissenting. Investors are nervous. And manufacturing is being hurt by a stronger dollar, which has made United States goods pricier overseas. Low interest rates have been a boon for stock markets for several years.
Crude oil futures fell, although they retained most of their gains after soaring more than 6 percent overnight as the US government reported an inventory build-up, which triggered a short-covering rally after three days of losses.
The Fed cut its benchmark rate to near zero during the recession to encourage borrowing and spending to strengthen the economy. It means that the target of 2 percent inflation rate is hard to achieve in the current circumstances.
But the clear improvement in its economic outlook in a new policy statement, including downplaying previous concerns about the slow world economy, raised the possibility that an increase could come as soon as its December meeting.
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At the start of the year, a rate increase was expected by June. “The Committee continues to monitor inflation developments closely”, the statement read. Inflation has consistently run below the Fed’s target rate of 2 percent and even experienced bouts of deflation, while unemployment peaked at 10 percent back in October of 2009.
