Unemployment increased in the third quarter, while data out on Thursday continued to confirm weakness in economic growth. But economists expect growth to pick up in the fourth quarter, given strong consumer spending figures.
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ENERGY: Oil prices fell back after soaring when Pemex, the national oil company of Mexico, said it received permission to swap crude oil with the USA, possibly ending the US ban on exporting crude.
“The fluidity with which (Fed chief Janet) Yellen and the Federal Open Market Committee adopts and discards reasons for changing its monetary policy stance has heightened market uncertainty, and diminished the Fed’s credibility”, said Citigroup’s chief USA economist William Lee.
Many investors are still not convinced about a lift-off given a recent run of soft USA data, making economic releases in coming weeks, starting with the advance reading of U.S. GDP due later on Thursday, more crucial in determining the a December move.
But even though many Fed officials have said a rate hike is likely in 2015, chances are starting to dim. Inflation remains flat, the September jobs report was disappointing and manufacturing is getting hurt by the strong United States dollar. Rate-setters struck out a clause saying recent global trends might “restrain” the economy, and upgraded their assessment of household spending and business investment. The short term interest rates were at their lowest i.e. near zero for last seven years. But that subpar number should not be mistaken for slower underlying growth. The Reserve Bank of New Zealand issued a dovish statement but opted to leave benchmark interest rates unchanged at 2.75 per cent. The kiwi dollar has fallen 0.7 per cent since the decision to NZ$0.6672.
The Fed said it would maintain its accommodative policy by reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.
“We have reached the penultimate decision of the year and despite the Fed’s constant insistence that rates should rise this year, the market is becoming increasingly confident that it won’t happen”, said Oanda analyst Craig Erlam.
The Fed’s stance is in contrast to the ECB and other major central banks, a factor that will underpin the dollar.
Congress may help if a budget deal announced this week wins approval. That could avert a government shutdown and raise the government’s borrowing limit – two threats that concern Fed policymakers.
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Information for this article was contributed by Martin Crutsinger of The Associated Press; by Jeanna Smialek of Bloomberg News; and by Binyamin Applebaum of The New York Times.
