The Fed did signal it could hike rates by year-end as the labor market improved further, but cut the number of rate increases expected in 2017 and 2018. Regional Fed presidents including Philadelphia’s Patrick Harker, Atlanta’s Dennis Lockhart and Cleveland’s Loretta Mester will address a panel discussing the central bank’s role and responsibilities in Philadelphia on Friday. Other reasons are as follows: the USA presidential election in November (usually, the USA central bank tries to avoid, if possible, any major monetary actions as an election approaches), and the belief that we live in a new normal with very low natural rates.
Advertisement
Asian stock markets held fairly steady Friday, holding on to gains in the week driven by USA and Japanese central bank policy decisions that fueled investors’ belief that low rates will be around for a few more months.
“We judged that the case for an increase has strengthened but decided for the time being to wait”, Yellen told a news conference. After strong job reports and manufacturing data, inflation continued to be below the FED’s 2% target, and indicated that there is still room for improvement.
Meanwhile the dollar was lower against the euro, at $1.1208, even though the Fed made clear that, while if it was not raising interest rates this week, it was likely to do so in December.
Three of 10 voting policymakers dissented, saying they preferred an immediate hike rather than the deferral until later in the year that most saw as appropriate.
Initially, the FOMC chalked out a course of four rate increases in 2016 – counting on the momentum of the economy toward the end past year to continue, which encouraged policymakers to hike their lending level by 25 basis points to a range of between 0.25 and 0.50 per cent in December.
Winer said he remains concerned how much more stocks can increase in the short term, with the US presidential election coming and third-quarter company earnings reports around the corner. It expects the economy to expand just 1.8 percent this year and by an nearly equally sluggish 2 percent in both 2017 and 2018. After a slew of headwinds earlier in the year, the Fed now appears like it will only raise rates once – if that.
The consensus among economists is for a hike in December as the Fed’s November meeting comes right around the US Presidential elections.
The dollar fell to its lowest in a week against a basket of major currencies as investors sold the greenback following the Fed’s reduction of longer-term interest rate expectations.
High-dividend payers like real estate and phone companies rose Thursday, a day after the Federal Reserve said it would keep interest rate near their historic lows.
Advertisement
The U.S. central bank had hinted that it might raise rates before the year ends and interest rate futures were pricing in roughly a 60-per-cent chance of a rate increase by December. They stress that this does not mean they are confident in the economy; they just have current reservations changing rates.
