The meeting wrapped up just hours before the U.S. Federal Reserve’s latest policy decision was due.
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Yellen suggested then that given the job market’s solid gains and the Fed’s outlook for the economy and inflation, “the case for an increase in the federal funds rate has strengthened in recent months”.
Turning back to the Fed, the updated Summary of Economic Projections showed a forecast for only three quarter-point rate hikes by the end of 2017. “The Fed have signalled that if everything stays the way it is then December is more than likely the next rate rise and this will keep a lid on any rally”, David Govett, head of precious metals at Marex Spectron, said in a note.
The committee was unusually split with George, Mester and Rosengren dissenting in favor of a hike while three officials see no rate hike in 2016.
I agree with the dissenters.
Investors did not appear to significantly shift their bets on the timing of the next rate hike.
In choosing to keep rates steady, Dr Yellen may have believed that resistance was a better public look than several permanent Washington-based governors, such as the dovish Lael Brainard and Daniel K. Tarullo, who would have nearly certainly dissented against any rate rise this month. But it decided leave its main rate unchanged this month. In reaction to the BoJ decision the benchmark Nikkei 225 index jumped 1.9 percent Wednesday, to 16,807.62.
The yen was also at four-week high against the greenback and the overnight drop in US government bond yields saw German Bund yields move decisively back into negative territory.
Meanwhile, the dollar edged lower to US$1.1189 per euro after the Fed left its benchmark rate stuck at 0.25-0.50 per cent, saying it needs to see more evidence of firming of the economy.
“That’s very much a global theme right now”.
“We are in a pretty good environment for stocks with low interest rates and companies beginning to show signs of life although the earnings aren’t as robust as we’d like to see”, said Alan Rechtschaffen, portfolio manager at UBS in NY.
Nowhere has a more ultra-easy monetary policy than Japan, where the central bank said on Wednesday it would persist with its massive asset-buying and negative rates, while at the same time shifting its policy framework to one more suited to a long battle against deflation. “When you are comparing things to the low interest rates we have, things can look attractive that wouldn’t look attractive in a normal interest rate environment”.
Both of these outcomes makes sense in the freakish world policy makers find themselves in, yet neither has a good track record of working to achieve the goals of strong growth and moderate inflation.
The world’s other major central banks have spent years struggling to rejuvenate their economies, to raise inflation and get businesses and consumers to spend more. Raising rates now would actually make such a downturn more likely, so creating the ability to respond to a self-induced recession is not a good scenario. It pushes people into risky investments as they search for earnings, and it creates pressure on pension funds and the like.
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“Gold prices remain to be largely influenced by the greenback and interest rate expectations”, said Barnabas Gan, an economist at Oversea-Chinese Banking Corp.in Singapore. There is a high risk that doing so would threaten job growth, just as people are finally returning to the labor force.
