Fed keeps rates steady, hints at year-end hike

But that hardly changed the market’s perception on the outlook of the Fed’s policy, with interest rate futures pricing in roughly 60 per cent chance of a rate increase by December, little changed from before the Fed meting.

Fed Chair Janet Yellen and other top officials sent strong hints in recent speeches that rates were unlikely to budge this month.

Federal Reserve chair Janet Yellen last night braved mounting opposition inside and outside the USA central bank and delayed an interest-rate increase again to give the economy more room to run.

Some analysts took heart at the fact that the dollar was able to pull itself off its overnight session lows above the 100-yen level, which remains a key technical point.

Three of the current 10 voting members dissented, preferring an immediate rate hike, while three of the 17 Fed officials at the meeting said they expected no rate hike whatsoever this year.

The Fed’s statement Wednesday was issued hours after the Bank of Japan, struggling to rejuvenate an ailing economy, set a more ambitious goal for raising inflation and announced steps meant to raise the profitability of financial firms. Officials had grown concerned about a range of global problems earlier in the year, including Britain’s decision to exit the European Union and China’s uncertain economic outlook.

But even those who expected no move from the Fed wondered how it would justify standing pat.

This faction believes the Fed must begin to gradually nudge up rates or risk having to lift them abruptly down the road to stave off runaway inflation, a strategy that increases the risk of recession.

The central bank’s next meeting is just a week before the November elections, and most analysts think it wouldn’t want to raise rates so close to when voters go to the polls. Yellen stressed that even though the Fed previous year only raised rates slightly from near-zero levels that have prevailed since the financial crisis, monetary policy is now only “modestly accommodative”.

“The dot plot has moved quite sharply lower”, said Alvise Marino, FX strategist at Credit Suisse in NY, in reference to the Fed’s less aggressive rate rise projections.

At the bottom of all this jaw-boning is the simple fact that the Fed overplayed its hand a year ago by pretending that this recovery would last and could withstand four rate hikes in 2016. That’s the interest rate level the Fed reckons will be enough to keep growth on an ticking over.

US stocks are rising Wednesday morning, following global markets higher, as investors wait for the Federal Reserve to conclude a policy meeting.

She played down concerns that the Fed’s easy monetary stance was fuelling bubbles in the financial markets and the economy.

The unemployment rate hasn’t moved much this year. That view appeared to be backed by a resilient yen, underpinned by doubts over whether the Bank of Japan’s policy overhaul will be enough to generate inflation. At that time, the jobless rate was at 5 percent.

Household spending has been growing strongly but business fixed investment has remained soft.

However, while they lowered their growth forecast for this year, the policy committee said the rebound would continue through the second half, and suggested borrowing costs could rise before the end of the year.