The Federal Reserve is keeping U.S. interest rates at record lows in the face of persistent threats from a weak worldwide economy and excessively low inflation.
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Gold prices slid to three-week lows Thursday as the market reacted to a Federal Reserve statement the day before that increased the possibility of a rate increase before the end of the year, making the precious metal a less attractive investment compared to interest-bearing securities.
The Fed has been struggling to convince investors a rate hike was imminent in the wake of data this month that showed USA employers slammed the brakes on hiring in August and September. While the European Central Bank (ECB) signalled its readiness to introduce more stimulus after its policy meeting last week, People’s Bank of China (PBoC) not only cut interest rates for the sixth time in less than a year but also reduced the amount of cash its banks should hold as reserves. In the statement issued after its previous meeting in September, the Fed said global economic and financial developments might restrain domestic growth.
Another major central bank meeting was held after the Fed.
The Fed’s decision to delay an increase until at least mid-December means that short-term rates will remain near zero for a seventh full year. A few economists are certainly feeling more emboldened by their December rate-hike calls.
Following a two-day meeting in Washington, Fed policymakers voted to leave rates at 0-0.25% – where they have been for the seven years since the financial crisis. Easy money policies overseas push the dollar higher and reduce the competitiveness of U.S. exports and prevent inflation to come close to Fed’s target of 2 per cent. “For investors who were liking the fact rates were going to stay lower for longer, this could be a reason to take a few profit”, said David Vickers, a senior portfolio manager at Russell Investments in London.
Stocks gave up a few of their gains after the Fed’s midafternoon announcement, and the yield on the 10-year Treasury note rose slightly. Patrick O’Keefe, director of economic research at the accounting firm CohnReznick, says he’s unsure whether Wednesday’s statement makes a December rate hike more likely.
The report on GDP which is expected on Thursday is considered as a chief factor for deciding if there is a chance of a hike in interest rates in December.
Richmond Fed President Jeffrey Lacker dissented on Wednesday for the second consecutive meeting.
The South Korean won fell by more than 1 percent, while Indonesia’s rupiah sank 0.5 percent and the Malaysian ringgit slipped 0.2 percent.
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“This in turn implies only a small change in the opportunity cost of holding commodities”, he said, adding that there could be no change at all if the rate rise was offset by an increase in the general level of inflation.
