Fed Won’t Raise Rates Just Yet, But Economy Is Strong

Barring a slide in the health of the American economy, USA interest rates will rise in December after a divided Federal Reserve Open markets Committee left interest rates unchanged overnight.

Also, the U.S. Census Bureau showed that payroll employment increased in August, however it was not as much as experts previously predicted, and many said it would not be enough to raise interest rates.

‘We generally agreed that gradual increases of the federal funds rate, to remove what is a modest degree of accommodation, will be appropriate, but we don’t see the economy as overheating now, ‘ she said. But it noted that business investment remains soft and inflation too low and that it wants to see further improvement in the job market.

“This seems to have been one of the most divisive FOMC meetings in recent memory”, Capital Economics Chief Economist Paul Ashworth said.

Shorter-dated USA government debt fell while 10-year Treasuries rose, reflecting expectations that investors are toning down bets on Fed rate hikes further down the road. By keeping the rates unchanged, the Fed expected the labor market to continue to improve.

The decision came hours after the Bank of Japan announced an overhauled monetary-easing strategy as it seeks ways of further stimulating its economy.

The Fed’s policymaking committee kept the federal funds rate unchanged at 0.25 to 0.5 percent, though three of the 10 voters supported a quarter-point hike.

The decision leaves the Fed’s interest rate range at 0.25%-0.50%, where it has been stuck since the Fed raised interest rates last December, the first hike in nearly a decade. The central bank set a cap on 10-year bond yields and vowed to overshoot its 2 per cent inflation target as it seeks to escape from its low-inflation rut.

In a new round of economic projections published Wednesday, 14 of 17 Fed officials said they expected to raise the benchmark rate at least once this year.

Silver prices hit highs around $19.90 following the decision and consolidated close to daily highs on expectations that low global interest rates would be sustained as chair Yellen’s press conference added little to the overall debate. The BoJ said it will continue asset purchases at a rate of about 80 trillion yen ($787 billion) a year.

European stock markets rallied Thursday, after solid gains in Asia, as the U.S. Federal Reserve opted against lifting interest rates – but signaled action later this year. Feds has been very sensitive towards the unemployment rate and added jobs in the economy.

“We had a rich, deep, serious, intellectual debate about the risks and the forecasts for the economy, and we struggled mightily with trying to understand one another’s points of view”, she said.

Investors did not appear to significantly shift their bets on the timing of the next rate hike.

The Fed’s next meeting is just days before the November 8th election, making it a hard moment to change policy.

“That just calmed the initial nerves in the marketplace trying to digest what impact a rising interest rate world will actually bring”.