Divided Fed holds rates steady –> Divided Fed holds rates steady

The dollar came under fresh pressure in Asia on Thursday after the Federal Reserve decided against lifting interest rates but the prospect of cheap cash for longer fed another rally in regional equity markets.

Wall Street racked up gains on Wednesday after the U.S. Federal Reserve kept interest rates unchanged, for now leaving intact the low-rate environment that has helped underpin the bull market.

Until recently, many Fed watchers had thought that a rate hike was likely this week. Under typical conditions, keeping interest rates low can spur business growth and thus lower the unemployment rate while risking higher inflation.

Yellen on politics plays no role in Fed decisions: “I can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy”.

The Fed also trimmed its median rate hike guidance for this year, from two increases to just one.

In a statement following a two-day policy meeting, the US central bank signalled it could tighten monetary policy by year-end as the labor market improved further, but Fed policymakers cut the number of rate increases they expect this year to one from two.

US gold futures settled up 1 percent at $1,331.40 prior to the release of the Fed statement. But Kansas City Fed President Esther George, who also dissented after the July meeting, was joined this time by Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren in calling for an increase to the short-term federal funds rate.

The Fed last raised interest rates in December 2015, its first increase in almost a decade.

In company news, Microsoft shares gained 0.9 percent after it said it would buy back up to $40 billion of its shares and raised its quarterly dividend.

Yields on the 10-year note fell two basis points to 1.67 percent, while yields on two-year notes rose two basis points to 0.79 percent.

Yellen stressed that the USA economy is progressing, close to a sustainable unemployment rate below 5 percent and in time the inflation rate is expected to rise to the Fed’s 2 percent goal. That decision was due out today at 2am Singapore time and could reinforce the feel-good factor at a time when many markets sorely need it. While there is a Fed meeting slated for the start of November, that takes place just a week before the presidential election.

Many Fed watchers read Wednesday’s decision as a central bank anxious to act soon.

Fresh FOMC forecasts released Wednesday “show an overwhelming majority of FOMC members anticipating one hike in the remainder of the year”. Still, analysts hope to glean additional insights into Yellen’s thinking regarding the economy’s sluggish growth and last month’s downshift in hiring.

An encouraging uptick in non-mining investment and better than expected economic growth of 3.3 percent in the year to June, however, could mean the Reserve Bank of Australia will be in no rush to lower rates as it adopts a flexible approach to attain its inflation target of 2 percent to 3 percent. China’s abysmal start to the year, coupled with falling energy prices and a strong dollar, lead to stocks enduring their worst start to a year ever.

However, a slowdown in global economy since the start of this year and other global financial risks have made Fed policymakers cautious and hold off on any further rate hikes.