The dollar extended its losses against other major currencies on Friday, underscoring investors’ wariness over weakness in the global economy and markets given the Federal Reserve’s decision to keep interest rates unchanged.
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However, in light of the heightened uncertainties overseas and a slightly softer expected path for inflation, the Fed judged it appropriate to wait for more evidence, including some further improvement in the labor market to bolster its confidence that inflation will rise to 2 percent in the medium term, Fed chairwoman Janet Yellen said at the press conference on Thursday. Low oil prices have also inhibited inflation.
Clemons said he expects the Fed to raise rates before the end of the year, especially if concern in the financial markets about China’s economic prospects eases.
Ending a highly anticipated meeting, Fed officials today said that while the United States job market is solid, global pressures may “restrain economic activity” and further drag down already low inflation.
Expectations for USA interest rates are likely to continue to drive stock markets and the dollar in the final months of the year. Prices for U.S. Treasuries rose.
The Fed’s downgrades to its forecasts for growth and inflation weren’t large.
France’s CAC 40 slipped 1.3 percent in early trading to 4,594.96 and Germany’s DAX fell 1 percent to 10,128.95.
In maintaining its policy, the Fed is keeping its benchmark short-term rate near zero, where it’s been since the depths of the 2008 financial crisis.
Asked by a Fox Business reporter if it was the economic slowdown in China that had the Fed looking warily at the global economy, Yellen said yes – but not only China. So, even with the October and December meeting on the horizon, the course of the world economy remains uncertain. It now foresees the economy expanding at just a 2.3 percent pace next year, down from June’s projection of 2.5 percent.
The continuation of the Fed’s ultra-low-rate policy likely means that rates on mortgages and auto loans will remain low.
The low interest rates also have helped to fuel auto sales, which are supposed to come in at more than 17 million sales this year.
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Only Jeffrey M Lacker voted against the action, meaning he was in favour of raising interest rates by 25 basis points. In addition, the target inflation rate of around 2 percent has not been achieved either – which places more pressure on the Fed to hold off on the increase.
