Local media have said that this fuels speculation that a rate hike could be expected in December.
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“The economy has a little more room to run than might have been previously thought”, Yellen told a press conference in Washington after the Fed’s two-day meeting, as she explained the decision to keep rates on hold.
“The Fed appears to be firmly on track for a December hike”, Paul Ashworth, chief economist at Capital Economics, said after the statement was issued.
Markets took to heart the Fed’s pointed signal that it could increase its benchmark rate in December.
Eswar Prasad, a professor at Cornell University and senior fellow at the Brookings Institution, told Xinhua that “we could see a rate hike at the end of this year” if the USA economy remains strong with good job growth and inflation continues to pick up.
Yellen announced that the Federal Reserve has chose to leave the interest rate unchanged for now.
Wall Street isn’t expecting the Fed to boost rates today, and the CME Group says futures markets are only pricing in a 15% chance the Fed will hike rates for the first time this year, after raising rates back in December for the first time in almost 10 years.
Ms Yellen said Fed officials had “struggled” to reach a consensus, though she said the disagreement was mostly about a narrow question of timing. Energy companies jumped with the price of oil.
Not only did the Fed put off a rate increase, it also scaled back the number of hikes it expects next year, to two from three, according to the median forecast of FOMC participants released after the conclusion of the two-day meeting.
Why do interest rates matter? Chronic underfunding would likely cause them to increase further in the coming years, a trend the report’s authors say is “unsustainable”. Prices for fed funds futures contracts suggested investors continued to see just better-than-even odds of a hike at the December policy meeting, and nearly no chance of an increase in November.
As a result, even unconventional monetary policy efforts from the BOJ and European Central Bank have shown a diminishing ability to weaken their respective regions’ currencies. But with lowered expectations for an imminent rate hike, the spread, or gap, between 2- and 10-year muni bond yields fell from 1.086 percent to 1.024 percent, its lowest level since July 8. However, the Fed sees inflation remaining “low in the near term”.
Bank of Japan Governor Haruhiko Kuroda announced two notable changes-officials will target inflation above their previous target of 2.0 percent and will establish a floor for the 10-year Japanese Government Bond yield. This is similar to what the Central Bank of Nigeria did Tuesday, when it was widely expected that the bank would reduce rates in line with the expectation of the finance ministry.
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The FOMC’s decision was affirmed by a vote of 7-3, with Yellen siding with the majority. Three policymakers projected that keeping rates unchanged this year would be most appropriate.
