The Fed said the USA job market has strengthened and economic activity has picked up but business investment is soft and inflation too low.
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Officials want to wait for more evidence of progress on jobs and inflation – which remains low – before a hike.
At the conclusion of its two-day meeting Wednesday, the Federal Reserve opted to leave key rates unchanged for the sixth straight time this year.
“It would seem at this point that, with all the recent economic data coming in just a little bit soft, that any move by the (Fed) would be a pretty nasty surprise”, said Eric Kuby, chief investment officer at North Star Investment Management in Chicago. After all, back in December the Fed had signaled it was likely to raise rates a quarter of a point four times in 2016.
Federal Reserve Chair Janet Yellen said the Federal Open Markets Committee will keep the Federal Funds rate at its current level, but says the case for an increase has strengthened.
While it is not expected to tighten this month, the policy board’s statement will be pored over for clues about its plans for its next meeting in December, or January. It strengthened 1.4 percent Wednesday following the BOJ’s adjustment to its stimulus efforts and the Fed decision to hold rates.
Speaking at a news conference after the meeting, Yellen noted that the historically low rates haven’t caused the economy to overheat.
A pick up in people returning from the sidelines of the job market to look for work in response to better opportunities and higher wages meant the economy has “a little more room to run” than previously thought, she said.
Far from seeming flustered by Wednesday’s three dissents, Yellen said at a news conference that it’s helpful that the Fed’s policy panel represents a range of views. More robust consumption in Japan will anchor Asian growth and have a more meaningful impact on Singapore’s economy, he added.
USA financial markets are modestly higher as investors await the Fed’s statement and Chair Janet Yellen’s 2:30 p.m. press conference.
But three presidents of regional Fed banks who hold rotating voting seats on the committee this year didn’t want to wait. All wanted to raise rates immediately. “Now at most there is only going to be one”, he said. Most analysts have said they think the Fed will next raise rates in December.
Their estimate for the rate in the longer run came down marginally to 2.9% from 3%.
A minuscule upgrade in the tone of the statement, which left the door wide open for a December hike, was offset by a downgrade to GDP growth rates in 2016, 2017 and 2018. They believed that the Fed, starting with a late-August speech by Yellen in Jackson Hole, Wyoming, was preparing investors for an imminent increase. Investors will be watching closely what Yellen has to say about interest rates after the release of the Fed’s statement. But that likelihood has faded as recent economic reports have turned out weaker than expected.
Yields on 10-year government bonds briefly broke into positive territory on the news before falling back. An index that tracks the services economy, where most Americans work, fell to its lowest level since 2010.
Japan’s central bank, overhauling its massive stimulus programme, chose to scrap its focus on monetary base and set targets for long-term rates.
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The central bank has appeared increasingly divided over the urgency of raising rates.
