A Fed statement after its latest policy meeting said the us job market has strengthened and economic activity has picked up but business investment is soft and inflation too low. That is down sharply from 3.5 percent in December, a sign the Fed expects that growth will remain sluggish and inflation low for the foreseeable future. According to the statement, BoJ will be using the interest rate, which is now at -0.1 percent to control the short-term yields and tweak asset purchases to control the long-term rates, namely the 10-year yield but the purchases won’t exceed ¥80 trillion per annum. Pointing to the “roughly balanced” language in the Fed statement, she said, “this statement basically increased the chances of a December rate hike”.
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Officials announced Wednesday at a meeting of the Federal Open Market Committee that the Federal Reserve will keep interest rates steady between 0.25 and 0.50 percent, while affirming a favorable outlook for the economy as a whole.
Economists believe policymakers would avoid a rate hike in November in part because the meeting falls just days before the US presidential election. The Fed chose to leave interest rates unchanged on Wednesday, in a predictable decision that indicates improvements in the economy, but not enough strength to bear higher borrowing costs.
Three out of 10 of the USA central bank’s policymakers voted against the decision to hold rates.
However, they explained, they still needed more evidence that the economy was headed to full employment, as the jobless rate sites at 4.9 percent, and that inflation would pick up and move toward their 2.0 percent target.
“Fed officials have downgraded their forecasts for rate hikes in their projections”.
The increase likely would come at the December 13 and 14 meeting, considering the November 1 and 2 session comes just ahead of the presidential election and there is no post-meeting news conference scheduled.
Keeping interest rates steady, the Fed also signaled it would take a slow approach to raising rates over the longer term, with expectations now set for two rate increases next year, compared with three previously.
“Clearly the markets view the Fed’s inaction as favorable. but if you read between the lines, the Fed is concerned about the strength of the economy”, said Matt Schreiber, chief investment officer at WBI Investments in Red Bank, New Jersey.
Yellen said the differences inside the FOMC mainly came down to the timing of rate increases, not to whether they should be carried out. Brent crude futures () rose 0.8 percent to $47.21, adding to gains of 2 percent on Wednesday.
On the other hand, consumer price inflation numbers firmed last week.
“The Federal Reserve is expecting yield curve flattening on the back of their monetary stance while the Bank of Japan is now actively engaging in yield curve steepening”. “The economy has a little more room to run”.
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But it is worth noting that three members of the committee, Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren, voted against the decision, preferring to raise the federal funds rate to 0.50% to 0.75% at this meeting.
