Stocks rise ahead of Fed rate decision, comments

Federal Reserve policymakers still expect to raise interest rates twice this year, the same expectation they had in March.

“It is a decision that could have consequences for economic and financial conditions in global financial markets”, Yellen said during a press conference following the meeting.

In its statement, the Fed said, “The pace of improvement in the labor market has slowed growth while growth in economic activity appears to have picked up”.

Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, said Brexit was a factor in the central bank’s decision not to hike rates.

“The labour market appears to have slowed down and we need to assure ourselves that the underlying momentum in the economy is not diminished”, Dr Yellen said.

Speaking with reporters, Federal Reserve Chairwoman Janet Yellen said the central bank had been caught off guard by developments such as weak spending by businesses and a slowdown in household spending.

In addition, vulnerabilities in the global economy remain, such as Britain’s vote on whether to stay in Europe Union or not, sluggish global growth and low inflation environment, according to the Fed chair.

Worries that Britain, the world’s fifth-largest economy, could quit the European Union have dominated markets this week and driven investors towards safe-haven assets such as gold and the Swiss franc.

The FOMC stuck to its forecast that inflation will rise to its target of 2 percent “over the medium term” but that it continued to watch prices. The yield on the 30-year bond known as the long bond, fell 1.4 basis point to 2.410%, its lowest level since January 2015, while the two-year Treasury yield lost 3.2 basis points to 0.686%, its lowest level since February 11, the day the stock market reached its nadir.

As widely expected, the Fed decided not to raise interest rates on Wednesday at the end of its fourth scheduled FOMC meeting of the year. The Fed also dialed back its 2017 growth forecast. It fell to 105.50 yen, the lowest since mid-October 2014 before recovering to 105.97, down 0.1 per cent. The euro gained against the dollar, up 0.5 per cent to $US1.1265. Longer-dated projections saw a more pronounced move lower, with the median now forecasting three hikes in each of 2017 and 2018, in contrast to the four that were previously expected.

The next Fed rate hike should have more of a positive impact since it will indicate that the December rate hike wasn’t just a one-time event.

The Dow Jones industrial average, which was up more than 55 points, or 0.3%, before the Fed’s 2 p.m. rate announcement, closed down 35 points, or 0.2%.

So the Fed made a decision to wait until the US economy pulls into sharper focus.

Not very long ago, top Fed officials were laying the groundwork for an interest-rate increase in June and talking optimistically about the economy.

Core CPI has been above the Fed’s 2 percent target, but the Fed’s preferred inflation measure is the PCE deflator, and it is below 2 percent.

Fed officials keep stressing that only when the latest data shows the economy edging consistently toward full health will they resume raising rates. While the Fed’s median projection for two rate hikes this year remains intact, six Fed members now see just one rate hike this year, up from just one member heading into the meeting.