Thursday, 21 February, 2019

Asian markets mixed after Fed keeps rate unchanged

Nellie Chapman | 01 February, 2018, 07:44

The Federal Reserve on Wednesday left a key short-term US interest rate unchanged, but the central bank also said it expects inflation "to move up this year" in a sign it's likely to hike rates at its next meeting in March. If inflation accelerates, however, Powell's hand may be forced into quicker interest rate hikes.

Today's Fed statement contains a few tweaks which could influence the market's view on the timing and the number of future rate hikes.

"The Fed will not be on standby for the remainder of the year", Yun said.

Fed officials raised interest rates three times past year and are expected to raise rates at least three times in 2018. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. "The challenge for Chair Powell will be to wade further into the uncharted waters of unwinding the crisis-era measures of near-zero interest rates and large asset purchases without creating waves in the financial markets", wrote Diane Swonk, the chief economist at Grant Thornton. Powell is expected to testify before Congress on the economy in February, but strategists don't expect a real change in tone until the Fed forecasts are updated.

Wednesday's interest rate decision will be accompanied by the FOMC statement that investors will use to gauge Fed policymakers' outlook on the economy, inflation and thus the tightening cycle. That two-day meeting starts March 20. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation. However, it indicated that it expects inflation pressures to heat up as the year moves on.

"Gains in employment, household spending and business fixed investment have been solid", its statement said. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent.

"This chart shows how the market is pricing the likelihood of the Fed funds rate as of this December's FOMC meeting reaching 1.75-2.00 percent (green = two hikes from current), 2.00-2.25 percent (blue) or 2.25-2.50 percent (red)", Hardy said. "Yellen's tenure has been largely successful, with the unemployment rate falling to a 17-year low".

Now, as Yellen makes way for her successor, Jerome H. Powell, who was confirmed by the Senate last week, the challenges confronting the central bank also are starting to change.

The three major benchmarks fell from the opening highs to stay pretty steady throughout most of the pre-announcement trading period. To our recollection, she never talked about "irrational exuberance", or pretended she knew best where stock and bond prices should be.

The Dow Jones is up over 143 points at the time of writing 26,219, while the S&P 500 is over five points to the good- at 2,828.

NEW YORK, Jan 31 (Reuters) - The U.S. dollar edged higher on Wednesday and world stocks lost the shine they took from Boeing's strong earnings report after the Federal Reserve indicated more interest rate hikes were in store. Since then, the $1.5 trillion tax cut has been signed into law, stocks have been reaching fresh records, consumers have been spending and President Trump said at last night's State of the Union address that workers can expect to see more money in their paychecks in three weeks-all typical signs of economic growth.