A divided Federal Reserve voted to keep interest rates unchanged Wednesday.
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In 2.56pm trading in NY, the Dow Jones Industrial Average increased 0.4 per cent, while the Nasdaq Composite Index gained 0.5 per cent. The Standard & Poor’s 500 index picked up 11 points, or 0.5 percent, to 2,150.
The Nasdaq composite hit a record high, adding 53.83 points to 5,295.18.
The committee judged that the case for a rate increase had strengthened, but chose to wait for the time being and await for further evidence of continued progress towards its objectives.
This means the Fed has raised rates only once – by a mere 0.25 percentage points last December – over the past decade.
“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. It was the most “no” votes since the December 2014 meeting. “The fact that three voters dissented is interesting, and it is pretty clear that the Fed plan on hiking in December this year as things stand”.
Financial markets, which were watching closely for any sign of a clear timing for rate increase in the world’s biggest economy, responded with the dollar losing value – standing at nearly $1.31 versus the pound. In addition, the Fed lowered its US economic-growth outlook to 1.8% in 2016 from a 2% estimate in June. The eurozone economy is growing slowly, but inflation remains well far below the ECB’s 2 percent annual target.
Lowering the trajectory of the future path for interest rates sent prices of US government bonds higher, and yields lower.
Yields on the 10-year note fell two basis points to 1.67 per cent, while yields on two-year notes rose two basis points to 0.79 per cent. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
The Fed’s new interest rate projection for 2017 left rates centred at 1.125%, down from 1.625 per cent in June.
The “dot plot”, part of the FOMC’s Summary of Economic Projections released along with the policy decision statement, shows where each participant in the meeting thinks the fed funds rate should be at the end of the year for the next few years and in the longer run.
It added that its rate-setting committee had decided against raising rates ” or the time being”, until there was more evidence of progress toward its employment and inflation objectives. What matters here is that the jawboning for rate hikes ahead will continue.
“However, some volatility can be expected before all US Fed meetings as future rate hikes have been kept open-ended”. United States short-term interest rate futures trimmed earlier losses and some nearer-term maturities rose on Wednesday. Instead, the BoJ surprised investors by announcing a “new framework” to combat persistent deflation.
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Despite the Fed’s positive read on economic data and a backdrop of core inflation approaching the 2% target, policymakers clearly think that they can be very patient in hiking rates over the next couple of years with little chance of an outburst of inflation. Tokyo’s Nikkei 225 reversed an early loss and closed 1.9 percent higher. Stocks were also higher in Europe, where the Stoxx Europe 600 index was up 0.4%, but off its highs earlier in the session.
