Stocks are opening higher on Wall Street as energy stocks rise along with the price of crude oil.
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In a statement following a two-day policy meeting, the USA central bank signaled it could tighten monetary policy by year-end as the labour market improved further, but Fed policymakers cut the number of rate increases they expect this year to one from two.
The independent bank regulatory agency, which is operated by the major banks with some federal input, said Wednesday the US job market has continued to strengthen and economic activity has picked up. In its statement, the bank said the case for higher rates was stronger but it wanted to wait for more evidence of progress. “The economy has a little more room to run”. In June Fed was projecting two rate hikes this year, now it has dropped to one.
The Fed kept its target rate for overnight lending between banks in a range of 0.25 percent to 0.50 percent, where it has been since it hiked rates in December for the first time in almost a decade.
But three members of the Fed’s 10-member policymaking committee voted to raise the benchmark rate, and most Fed officials said separately that they still expect to raise the rate once before the end of the year.
Put another way, it is going to take even more monetary gas than they expected to drive the US economy to the Fed’s forecast for 2 percent growth, 4.5 percent unemployment and 2 percent inflation by 2018. Brainard’s comments, coupled with a string of weaker-than-expected economic data, led watchers to conclude that there will likely be no rate increase this week.
In voting to hold rates at 0.25% – 0.5% the Federal Open Market Committee surprised few people, and doing so has put the investment spotlight firmly on the 8 November election.
The dissents from those wanting a hike suggested to some economists that pressure was building. Compared to December 2014 forecast, Fed is 200 basis points behind the expected curve which fuelled the rise of the dollar.
This signalled that the Fed is getting closer to raising rates again, having stood pat since last December, when it tightened monetary policy for the first time since before the financial crisis. Expectations of a rate increase have all but evaporated, but investors will comb the USA central bank’s statement for clues about whether it will hike in coming months. That means policymakers think the economy is about as likely to outperform forecasts as to underperform them. It expects the economy to expand just 1.8 per cent this year and by an nearly equally sluggish two per cent in both 2017 and 2018.
Adding some support to the Fed’s plans for at least one hike this year was a report that showed the number of Americans applying for unemployment last week fell to a two-month low.
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Shortly after the decision was announced, gold futures climbed 0.5 percent to $1,338.40 per ounce.
