In a statement after the September meeting the Fed said it did decide to wait on an interest rate hike.
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“We can more effectively respond to surprisingly strong inflation pressures in the future by raising rates, than to a weakening labor market and falling inflation by cutting rates”, she said. What investors wanted to know was when the Fed might lift rates.
The Federal Reserve projected a less aggressive rise in rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9 percent from 3.0 percent.
Here’s the new dot plot, along with June’s projections.
“Although the unemployment rate is little changed in recent months, job gains have been solid, on average”.
In a post-meeting statement, the Committee noted that the case for an increase in rates “has strengthened”, but chose to “wait for further evidence of continued progress toward its objectives”.
It has been at that level since last December, when officials chose to raise the rate for the first time since the financial crisis.
The Fed has held its target rate for overnight lending between banks in a range of 0.25 percent to 0.50 percent since December, when it raised borrowing costs for the first time in almost a decade.
While agreeing that the case for a rate rise had strengthened, Yellen argued that it made sense to put off a move for now amid signs that discouraged Americans who dropped out of the labour market are returning and looking for work. Prices for fed funds futures contracts suggested investors continued to see just better-than-even odds of a hike at the December policy meeting, and nearly no chance of an increase in November. Ongoing economic growth and an improving job market are key factors supporting the Fed’s inflation outlook.
The increase likely would come at the December meeting, considering the November session comes just ahead of the presidential election and there is no post-meeting news conference scheduled. Economists disagree about the best path forward under current conditions, and the Fed’s actions and messages are being closely monitored. The data also show faltering worldwide trade which hurts economic growth.
Growth this year is now expected to be 1.8%, rather than 2% as predicted in June, and the longer-run growth rate was also trimmed to 1.8%.
Real estate companies rose more than the rest of the market, with the newly created real estate component of the S&P 500 up 1.7 percent. There’s also evidence that threats to USA growth from global instability have eased.
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“It is becoming clear that central banks around the world see themselves supporting the economy with loose monetary policy while governments remain slow with fiscal reform”, said Lorne Baring, managing director at B Capital Wealth Management.
