We talked last week about Donald Trump’s claim that Fed Chair Janet Yellen and her colleagues are keeping interest rates low as a political favor to President Obama. The bank said it will continue asset purchases at a rate of about 80 trillion yen ($787 billion) a year.
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But no one knows for sure.
The markets had widely expected that the Fed would keep its key lending rates unchanged.
He also said low rates were creating a “false market” and that stock markets were likely to drop sharply once rates eventually do go up. No further rate hikes have followed.
At its meeting, the Fed opted to hold rates between 0.25% and 0.5%. Yellen said the slowdown in the global economy warranted caution.
The US central bank said it saw near-term risks to the economy as “roughly balanced”. What investors wanted to know was when the Fed might lift rates.
Investors did not appear to significantly shift their bets on the timing of the next rate hike.
The Fed will update its quarterly economic forecasts Wednesday. Japan’s benchmark Nikkei 225 index jumped 1.9 percent on Wednesday on the news.
As the Fed has hesitated to raise rates, there is a growing debate about its credibility.
Another hint of the Fed’s thinking could come from any revamping of its inflation forecast. The central bank set a cap on 10-year bond yields and vowed to overshoot its 2 per cent inflation target as it seeks to escape from its low-inflation rut. It promised to keep expanding the nation’s money supply until inflation surges above 2 percent for an unspecified time. If it does, it might suggest no rate hike for a while. “Of course it is good news for the financial markets in the short term, but the market has expected this and the interest rate risk hasn’t gone away”. “However there was some dissent, with three members calling for a rise”. The S&P 500 Index gained 1.1 percent to 2,163.12, the most on a Fed day since December, when it raised rates for the first time in a decade and the market ended 1.5 percent higher. But in March, the Fed scaled back that forecast to just two increases this year. It was the most “no” votes since the December 2014 meeting.
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The probability of Fed maintaining the target rate at the current level of 25-50 basis points in its November meeting rose to 85.5% from 78% a day before, data from CME Group’s FedWatch site showed. That is most evident in the healthy pace of job growth, which averaged 232,000 new positions over the last three months, and an unemployment rate of 4.9 percent. That was down from its March estimate that the rate would be at 3 percent after 2018.
