Despite the dissent of three more hawkish Federal Open Market Committee members, the consensus around a rate increase before the end of the year appears solid.
Advertisement
Britain’s top share index rose on Thursday, inching back towards its highest level of the year, buoyed by a rally across global stock markets after the Federal Reserve’s decision to keep us interest rates on hold.
The Fed said U.S. economic activity had picked up and job gains were “solid” in recent months and “the case for an increase in the federal funds rate has strengthened”, the central bank said in its post meeting statement this morning, Sydney time.
“We’re generally pleased with how the USA economy is doing”, Yellen said in a press conference following the conclusion of the Federal Open Market Committee’s two-day meeting in Washington.
Yellen said the FOMC has to thread the needle between stifling growth with a premature increase and allowing the economy, feeding on a decade of easy money, to get away from them.
In her news conference, Yellen offered a simple explanation for why the Fed didn’t raise rates: The economy can still grow without hurting itself.
“I can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy”, Yellen said.
“The change in expectations over the period have had a dramatic impact on risky assets and on the US dollar”. “We do not discuss politics at our meetings and we do not take politics into account in our decisions”. Three members dissented with the Boston, Kansas City and Cleveland heads calling for an immediate hike.
The Fed’s Open Market Committee said the case for an increase in the federal funds rate has strengthened but made a decision to wait for further evidence of continued progress toward its objectives.
The inaction, regardless of the members’ seemingly growing support for a rate hike, didn’t sit well with some economists. “December is their last chance to move this year”, said Brian Edmonds, head of rates trading at Cantor Fitzgerald in NY.
As for growth, the committee now foresees full-year gross domestic product of just 1.8%, a decrease from the 2% estimate in June. That is most evident in the healthy pace of job growth, which averaged 232,000 new positions over the last three months, and an unemployment rate of 4.9 percent. Analysts said they would be expecting a rate hike at the next meeting in November if it were not occurring less than a week before the presidential election. Since 1984, the Fed has raised its key interest rate only once – in 2004 – within two months of election day.
21, 2016, after Japan’s central bank rejiggered its stimulus policies to have a greater influence over long-term interest rates and as investors looked ahead to the Federal Reserve’s policy meeting.
Advertisement
Inflation for the year is now expected to register at 1.3 percent, down slightly from June’s projections and still well short of the Fed’s 2 percent inflation target. The bank said it will continue asset purchases at a rate of about 80 trillion yen ($787 billion) a year.
