The Fed also said it is “monitoring” the global economic slowdown – toned down language compared to its September statement.
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“The upshot is that if the Fed is raising nominal interest rates to counter rising wage and price pressures, the net effect on real interest rates (and on demand for inflation hedges such as gold) could be zero”, he said.
After a two-day meeting, policy makers at the USA central bank expressed more faith in the strength of the economy than expected, brushing over recent weak spots and focusing on what they called “solid” consumer spending and business investment.
Even so, forward contracts based on the sterling overnight index average, or Sonia, suggest that a full 25 basis-point increase to the BOE’s 0.5 percent official bank rate won’t come until after December 2016.
“With market volatility having normalized and job growth continuing at a pace that will reduce labour market slack, we see little reason for the FOMC to delay the first rate hike until 2016”, wrote RBC in a note.
At the start of the year, a rate hike was expected by June.
The FOMC also dropped a key line that appeared in the September policy statement showing a few worry about how the turmoil in global markets and China’s downturn would impact U.S. growth.
The Fed has struggled to convince sceptical investors that a rate hike is imminent.
Following its latest two-day policy meeting, the bank’s Federal Open Market Committee issued a statement that downplayed recent global financial market turmoil and said the US labor market was still healing despite a slower pace of job growth.
The us dollar rose sharply and yields for USA government debt soared in anticipation of higher rates.
However, the statement accompanying the Fed’s decision, which tends to change only slowly from meeting to meeting, was more hawkish than expected.
Fed Chairwoman Janet Yellen has been saying for much of this year that a rate hike would likely be needed in 2015 to keep the economy from eventually…
Michael Feroli, an economist at JPMorgan Chase and a former Fed staffer, said, “The Fed sent its clearest signal yet that, pending decent data, it has the December meeting in its sights for the first rate hike”.
In its previous statement in September, the Fed spoke of “determining how long to maintain” its near-zero target rate.
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While indications are that European Central Bank and Bank of Japan may opt for another round of quantitative easing, Reserve Bank of India gets more elbow room to ease its stance either through rate cuts or reduction in SLR and CRR.
