Fed Keeps Rates Unchanged, Inflation Target Not Achieved

Although the Fed didn’t sound overly dovish in today’s FOMC statement, it is believed Fed will be postponing the next rate hike from March to June.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. It also mentioned that it is expected to remain under 2%, given energy prices’ decline.

“Economic growth slowed late past year”, the Fed’s committee said in its statement, noting that the job market had improved.

Prospects of the two-day Fed meeting concluding with a dovish statement nudged U.S. Treasury yields down.

Given the economic outlook, the Committee chose to maintain the target range for the federal funds rate at 1/4 to 1/2 percent.

Household spending and business fixed investment have been growing at “moderate rates in recent months”, the FOMC said, after labeling such gains “solid” in the December statement.

In a widely expected decision, the Fed’s committee also decided not to raise its key interest rate.

So far this year, “There’s self-fulfilling panic in the stock market-stocks fall, and that dents the growth outlook”, said Jonathan Bell, chief investment officer at Stanhope Capital, which oversees $9.5 billion in assets. The Fed omitted a line from the previous statement in December saying the risks to the outlook were “balanced”.

The Fed aims to keep prices rising at about 2 percent a year, but it has consistently fallen short since the recession that lasted from the end of 2007 to the middle of 2009. “There is a risk that failure to raise rates significantly could precipitate more negative currency speculation and that is more detrimental to growth over the longer term”.

In their economic projections last month, a majority of the Fed’s 17 policymakers anticipated four 0.25 percentage point increases this year.

Global stocks were mostly steady Thursday as investors digested the Federal Reserve’s latest stance on interest rates. That was a prospect that unsettled investors used to years of easy credit fueling a boom in stock markets.

US-traded Fiat Chrysler Automobiles shares slid 2.1 per cent after the Italian automaker reported 2015 net profit well below expectations and down 40 per cent from a year ago due to a poor performance in Brazil, Argentina and China.

“The U.S. Federal Reserve gave no clear signals yesterday of how it plans to proceed with its rate hike cycle”, Commerzbank said in a note.

Earlier on Wednesday, the pan-European FTSEurofirst 300 index .FTEU3 rose 0.4 percent at 1,340.76.

USA stocks retreated after the announcement with the Nasdaq down 2.2 percent, and S&P 500 down 1.1 percent.

While acknowledging that low inflation levels – blamed on low oil prices, which it said were “transitory” – were concerning, the FOMC statement indicated that interest rates would remain as is, with monetary policy remaining accomodative.