Stocks climb, dollar falls as Fed holds rates steady

The US Federal Reserve left interest rates unchanged on Wednesday but strongly signalled it could still tighten monetary policy by the end of this year as the labour market improved further.

United States Federal Reserve Chair Janet Yellen holds a news conference following the two-day Federal Open Market Committee meeting in Washington, U.S., September 21, 2016. The statement stated that the case for a rate hike had strengthened, but the committee chose to wait for further evidence.

“The economy has a little more room to run”. However the central bank said it wants to see more improvement in the job market before raising rates.

“The Committee chose to maintain the target range for the federal funds rate at 1/4 to 1/2 percent”, the bank’s Federal Open Market Committee said in a statement, maintaining the rate it established in December.

Janet Yellen has absolutely no desire to roil financial markets by raising U.S. interest rates in the midst of a hugely divisive and corrosive United States presidential election campaign. Fed policymakers Esther George, Loretta Mester and Eric Rosengren voted against the move, wishing instead to raise the rate to a range of o.50% to 0.75%. That was the largest number of dissenters since late 2014, according to Bloomberg.

It is expected to keep the Official Cash Rate on hold at 2 percent, but also signal that there is likely to be an interest rate cut before the end of the year.

As the Fed has hesitated to raise rates, there is a growing debate about its credibility. Pointing to the “roughly balanced” phrasing, she said, “this statement basically increased the chances of a December rate hike”. Oil prices jumped after a third surprise weekly drop in USA crude stockpiles helped assuage fears over a global glut.

The dissents from those wanting a hike this week suggested to some economists that pressure was building.

The dollar hit a near 4-week low against the yen on Thursday after the US Federal Reserve kept monetary policy steady and projected a less aggressive path for interest rates hikes in coming years.

The only area where Yellen showed some feistiness was in rejecting the accusations from Republican presidential nominee Donald Trump that the Fed is keeping interest rates low at the behest of US President Barack Obama. Some analysts thought the central bank would take further steps to bolster economic growth, which would have weakened the yen.

Ms. Yellen said if the public had been watching this week’s meeting on TV, they would have witnessed a “rich, deep, serious, intellectual debate about the risks to the forecast for the economy”.

The BoJ introduced a 0% target for its 10-year government bond and also said it will continue to stimulate the economy after inflation has overshot its 2% mandate. The Nasdaq composite rose 53.83 points, or 1 percent, to a record 5,295.18.

The BOJ said it would start targeting 10-year interest rates, committing to keep them around zero as part of a new policy framework aimed at stoking inflation.

“The highly-unusual 7-3 FOMC vote speaks to the complexity facing the Fed operating in a prolonged period of highly unbalanced policy mix”, Allianz’s Mohamed El-Erian said.