Fed leaves rates unchanged; no hint on timing of next hike

The Fed indicates it needs a clearer picture of economic developments before raising rates again.

The Fed raised interest rates for the first time in almost a decade last December, leading to expectations that a series of rate increases would follow. Even if the United Kingdom does chose to remain within the EU, Steel says gold is unlikely to fall more than 7% to around $1,220/oz, “well supported by a number of outside factors”, including lower interest rates, global economic concerns and uncertainty around the U.S. election ahead. The Fed lowered its economic growth forecast for this year and the next to 2 per cent from 2.1 per cent.

Against the yen, the dollar dropped to its lowest in more than two years after the Fed statement.

She cited the surprising slowdown in job growth last month, adding, “We need to assure ourselves that the underlying momentum in the economy has not diminished”.

April 27, 2016: “We’ve chose to maintain the target range for the federal funds rate at 1/4 to 1/2 percent….Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high”.

It also cut its longer term view of the appropriate federal funds rate by a quarter point to 3 percent and indicated it would be less aggressive in tightening monetary policy after the end of this year.

One thing that suggests a Fed rate hike won’t happen at upcoming meetings is the vote tally of the FOMC voting members. A yes vote could roil markets, and the Fed wouldn’t likely want to further unnerve investors with a rate increase just a week before that vote.

The key consideration in this decision was the USA jobs market – with a little help from the uncertainties arising from the forthcoming British referendum and a few other factors.

Yellen said labor market improvements “have slowed”, and some business investment has been disappointing.

The Fed now expects the U.S. economy to expand by only 2% a year for the foreseeable future – slightly lower than the forecast in March.

Stocks have been under pressure this week amid fears that Great Britain will vote next week to leave the 28-nation European Union.

“The Fed no longer sees itself approaching its longer-run rate estimate by 2018”, commented Neil Dutta, head of Renaissance Macro Research.

The main justification the Fed gave for holding steady is the weak unemployment numbers.

In their previous meeting, in April, most Fed policy makers said they favored a June hike if the economy continued to improve, according to minutes of the session.

Despite those downgrades, a majority of Fed officials signaled they anticipated making two small, 0.25 percent rate increases this year.