Despite the monster winter storm, all 17 top Fed officials attended the two-day meeting in person, a Fed spokesperson said. Against the yen, the dollar pared some gains following the Fed statement, up 0.2% to Yen118.
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Information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late previous year, the Fed says. But no one is sure. “Reality has refused to cooperate”.
In its September statement, Fed policymakers warned that “global economic and financial developments may restrain economic activity somewhat” and were likely to put more downward pressure on low inflation. “Rather, the Fed’s apparently heightened concerns confirmed fears of a deteriorating global outlook, pushing investors to sell”. Fed Chairwoman Janet Yellen will testify to Congress about the outlook for the economy and interest rates on February 10-11. A key inflation gauge has run below the 2 percent target for more than three years.
In December, Fed policymakers nudged up the central bank’s benchmark short-term interest by 0.25 percentage point. When markets settled, they moved in December, and now new turbulence has placed central-bank officials back in the tough spot of measuring up new threats to the economy.
“It was very noncommittal”, said Asha Bangalore, economist at Northern Trust. But not this time: “or at least not yet”, chief economist for Australia and New Zealand at HSBC, Paul Bloxham, said in a research note. In its place, the Fed inserts its concern about global economic and financial developments.
Despite its worries, the Fed stopped short of saying that the volatility in January will change its plans to raise rates at least four times for the rest of 2016.
The central bank’s Federal Open Market Committee (FOMC), following a unanimous vote, issued a statement that mostly praised the USA economy, including a comment that the “housing sector has improved further”. After the Fed’s announcement at market close on Wednesday, all major US markets were down, including Wall Street, the Down Jones industrial average, the S&P 500 index and the NASDAQ composite index, all of which declined between 1.1 and 2 percent. “Right now the market is pricing in one”.
The tumbling markets so far haven’t shaken consumer confidence.
On Friday, another piece of the puzzle with will be revealed: The Bureau of Labor Statistics will release the fourth-quarter employment cost index – giving a better indication of whether wages managed to grow at a healthy clip at the end of a year ago.
The fact that the Fed will remain accommodative signals a gradual rise in interest rates instead of aggressive cuts, depending on how the economy performs. Export sales have slowed in part because a higher-valued dollar has made goods more expensive overseas.
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The robust hiring has come despite weakness in American manufacturing. It also mentioned that it is expected to remain under 2%, given energy prices’ decline.
