Federal Reserve Chairman Janet Yellen met with other Fed officials and decided on no action today and more gradual increases on interest rates.
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Asian shares turned in a mixed performance on Wednesday as investors anxiously awaited signals from Fed officials on the path of future rate increases.
But Fed Vice Chairman Stanley Fischer said in a speech last week that the US could be “seeing the first stirrings of an increase in the inflation rate”.
The central bank raised rates for the first time in almost a decade in December. Yet the Fed could not have anticipated the global stock market debacle that ensued at the beginning of this year and into February.
“We will probably go back now to a “nearly balanced” risk assessment”, said Larry Milstein, managing director of government-debt trading at R.W. Pressprich & Co.in NY, regarding the Fed’s reading of USA economic conditions. And consumer prices, excluding the volatile food and energy categories, have increased 2.3 percent in the past year, the most in more than two years. The Fed also cut its forecast for US economic growth and inflation, and significantly lowered its estimate for the number of rate hikes in 2016.
Oil prices did manage a bounce after data from industry group American Petroleum Institute (API) showed US crude stockpiles rose by less than half what analysts expected. “Instead, we may see a consensus forming for a next rate hike in June”, analysts at Rabobank said in a note on Wednesday.
The US central bank, however, noted that the United States continues to face risks from an uncertain global economy even as fresh projections from policymakers showed they expected two quarter-point rate hikes by year’s end.
But it must also weigh indications that the U.S. economy is breaking away from the others, picking up speed and showing signs of inflation that would dictate tighter policy.
The Dow Jones and S&P 500 stock indexes reacted positively to the news, swinging about a full per cent from being slightly down to slightly up on the day once it became clear the central bank wasn’t going to make lending incrementally more expensive.
April West Texas Intermediate crude dropped 84 cents, or 2.3%, to settle at $36.34 a barrel on the New York Mercantile Exchange.
“The Fed should and will not ignore the message from today’s (CPI) report”.
But investors will have more information to parse once the Fed issues a statement when its meeting ends and updates its economic forecasts and Chair Janet Yellen holds a news conference. Kansas City Fed President Esther George was the only policymaker to dissent on Wednesday.
The Fed made only a glancing reference to these developments in its statement, saying: “Inflation has picked up in recent months”.
“We see the focus swing to Federal Open Market Committee meeting where the market is looking at very low odds of a Fed rate hike (about five percent) while we might suggest the odds are 25 percent or higher”, he told Trend.
The dollar was up 0.4 percent against a basket of currencies.DXY and reversed an earlier slip against the yen to trade 0.5 percent higher at 113.69 yen JPY=.
Chinese officials, meantime, are struggling to convince global markets that they’re capable of managing a slowdown in the world’s second-biggest economy.
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At midday, the benchmark Stoxx Europe 600 index was down 0.2%, France’s CAC 40 was 0.1% lower and Germany’s DAX was 0.4% firmer.
