Stocks extend gains, dollar eases after Fed

The central bank characterized the near-term risks to its economic outlook as “roughly balanced”.

For almost 40 years, the Fed has stressed its independence from politics, making decisions to aid the economy that were controversial and unpopular. The Australian dollar has risen solidly through the US76¢ mark. It hit a high of US76.30¢ in the trading session and looks set to test the August highs of US77.50¢. BOJ’s decision spurred a global equity rally, including on Wall Street. Volumes were 13 per cent above the 30-day average.

Japan’s TOPIX banks sector jumped roughly 7%, while shares of banks and insurance companies rose more than 2% in Europe. The Energy Information Administration said oil inventories dropped by 6.2 million barrels and gasoline inventories decreased by 2.5 million barrels last week.

Governor Haruhiko Kuroda led his board in keeping the benchmark rate for a share of bank reserves at negative 0.1 per cent. Metals prices are also rising as the dollar gets a bit weaker.

Both hawkish and dovish comments from Fed officials recently have stoked volatility in financial markets, although consensus is now centred on a USA rate hike by year-end. Seven members voted to leave rates where they are.

“The case for an increase in the federal funds rate has strengthened but decided, for the time being to wait for further evidence of continued progress toward its objectives”, read the FOMC statement. A lower rate therefore increases the prospect of business investing in future projects. They foresee only two rate hikes next year and three in 2018, down from three each year.

Even though the probability of a hike is low, a surprise decision can’t be ruled out. The implied probability of a hike in the December meeting has moved modestly higher to 60 per cent. The biggest question Wednesday is whether the Fed will hint at when it will next raise its key short-term rate – and, if so, how explicitly it will do so. This was also the conclusion from a recent International Monetary Fund report, they added. Overseas, there’s the RBNZ rate decision, United States jobless claims (weekly) and leading economic indicators, euro-area consumer confidence data for September.

However, aiming to achieve the target level of a long-term interest rate specified by the guideline for market operations, the Bank may change the amount of offer, taking account of market conditions.

“If rates are kept on hold today, investors will be watching closely for any clues regarding a December hike”. The Fed raised interest rates in December, but hasn’t made another move since. But in March, the Fed scaled back that forecast to just two increases this year.

Predictions of tightening USA rates and a lack of recent easing from other central banks have stoked debate that the age of easy money – which has helped fuel a rally on global markets – could be ending.

The stock was also the top influence on the S&P 500 and the Nasdaq. Emerging markets have certainly appreciated the reaction.

In its comprehensive monetary policy assessment, the Bank of Japan abandoned the formal monetary base target and will now manage the yield curve with buying of government bonds aiming to keep long-term yields around 0.0%.

The Japanese stock market rose and the yen depreciated after announcing decisions, but some analysts doubt that the measures will have a positive lasting on the markets.