US Fed holds interest rates, hints at future hikes

04 May, 2018, 14:22 | Author: Teresa Adams
  • After the Bell Dow Slumps 174 Points as Markets Don’t Believe in Symmetry

The Federal Open Market Committee kept the fed funds rate unchanged as expected in a range of 1.5 percent to 1.75 percent at the end of its two-day policy meeting and said it expected inflation to hold near its 2 percent target, even hinting it would tolerate an overshoot with a reference to its target being "symmetric".

A related question for Mr. Powell and his colleagues is how the Fed would respond if inflation rises above the 2% target, which has scarcely happened since the central bank formally adopted it in 2012. This bullish outlook is being driven in part by America's robust labour market, where joblessness is seen falling as low as 3.6 per cent in the coming years from its current 4.1 per cent rate.

THE euro rose off four-month lows on Thursday, shrugging off data showing an unexpected slowdown in euro zone inflation, while elsewhere most currencies recovered some ground versus the dollar as the greenback's recent rally paused. The committee said it expects inflation "to run near the Committee's symmetric 2 percent objective" over the next few months.

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"In view of realized and expected labour market conditions and inflation, the Committee made a decision to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 per cent".

On growth, they remained pretty much optimistic... Depending on the results of the report, precious metals may lose Thursday's gains as they did following the last jobs report in March. Experts believe they may be two or three additional hikes in 2018. We think this further reinforces the case for rates not be hiked at next week's MPC meeting. When rates rise these metals tend to become less attractive to investors compared to interest-bearing assets.

In economic data, USA private sector employers are said to have added 204,000 workers to payrolls last month, according to the ADP Research Institute.

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The committee says it expects "economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run". The Fed is gradually tightening credit to control inflation against the backdrop of a tight job market, a resilient economy and a pickup in consumer prices.

The Fed, in a statement released after its two-day policy meeting, offered nothing to dispel market expectations that it will deliver its second rate increase of the year when it meets in June.

Gold is finally trading higher today.

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Both sterling and the euro had been somewhat oversold, and despite the euro rebounding somewhat, the data suggested the European Central Bank "will be dormant for some time", said BK Asset Management MD Boris Schlossberg. In the near term, the recent weak economic data readings in Europe could keep the pressure on the Euro and the GBP - with expectations of tighter monetary policy moderating. US joblessness hasn't been at that level since the 1950s, and no one is quite sure what that would do to inflation or financial stability. The critics charged that those policies would eventually produce destructive bubbles in the prices of stocks and other assets and, eventually, undesirably high inflation.

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