European stocks firm, dlr near 2 1/2 mth highs as Fed revives

The committee does not meet in November, but the statement on Wednesday signaled that a rate hike would be under consideration in its December meeting. A few Fed officials have signalled a desire to raise rates before year-end.

In a statement, the FOMC said that it continues to see the risks to the outlook for economic activity and the labour market as near to balanced but is “monitoring global economic and financial developments”. But many analysts point to a string of weaker-than-expected economic reports in recent weeks that they think will lead the Fed to delay any rate increase until 2016.

Speaking to Reuters, economists said the Fed was testing the water and trying to subtly hint to the market its intentions, possibly to avoid a taper tantrum similar to 2013.

Treasuries fell, lifting two-year note yields by the most since March, as Federal Reserve policy makers said the economy is expanding at a “moderate” pace and gave themselves the option to tighten policy at their December meeting.

Bullion for immediate delivery climbed as much as 0.6 percent to $1,162.81 an ounce before trading at $1,159.80 at 3:29 p.m.in Singapore, according to Bloomberg generic pricing. While the FOMC noted that household spending and business fixed investment had increased moderately over the previous two months, it expressed concern that a slowdown in the global economy had placed significant downward pressure on inflation. The long rate hike debate may finally end in December.

‘Growth is still strong enough to handle interest rates not being at emergency low levels any more, ‘ said Jennifer Lee, a senior economist at BMO Capital Markets. Currently, short term interest rates are in the range from 0 to 0.25%. The Fed put rates at zero during the recession to stimulate the economy.

The Fed is still looking to see “some” further improvement in the labor market and “reasonable” confidence that inflation is moving back to target before it starts raising rates, CIBC said. Since then, hiring has significantly strengthened, and unemployment has fallen to a seven-year low of 5.1 per cent. That includes better labor-market data, and proof that inflation is rising.