Global stock markets were generally downbeat Thursday after Federal Reserve policymakers left the USA benchmark rate at a record low but indicated they might raise it at their December meeting if the us economy keeps improving. “In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress-both realized and expected-toward its objectives of maximum employment and 2 percent inflation”.
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Gold has been supported in recent weeks on rising speculation that the Fed will delay its first rate hike in almost a decade to next year due to concerns over global growth and the impact on the United States economy.
Federal Reserve officials pivoted toward a December interest-rate increase, betting that further job gains will lead to higher inflation over time and allow them to close an unprecedented era of near-zero borrowing costs.
The Federal Reserve kept its near-zero benchmark interest rate unchanged Wednesday but said the USA economy is growing moderately on the back of “solid” consumer spending and business investment.
The Fed has essentially achieved its employment goal, with steady job growth and an unemployment rate at a seven-year low of 5.1 percent.
The Fed’s statement Wednesday was approved on a 9-1 vote, with Jeffrey Lacker, president of the Fed’s Richmond regional bank, dissenting.
“At these prices gold has already priced in a December rate hike”. It also repeated its warning that it wants to be “reasonably confident” that now ultra-low inflation will rise to its 2% target before it raises rates.
“The Fed has dialed down its anxiety over worldwide developments, but it’s best to play it safe”, said Brian Jacobsen, a portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
Chances of a rate hike this year were starting to dim after shaky economic data more recently.
‘We still think the Fed will end up delaying until 2016, ‘ he said.
Analysts are now looking favourably at a rate hike before the end of the year, with futures contracts implying a 43% possibility December is the call, compared to 34% prior to the statement, according to Reuters.
Australia’s dollar also fell 1 percent to a three-week low of $0.7112 AUD=D4 , following surprisingly subdued inflation data which increased the likelihood of further rate cuts there.
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But in its latest statement, such references were completely removed, suggesting the Fed believes recent moves by the European and Chinese central banks were sufficient.
