Divided Fed Holds Fire, Signals 2016 Rate Increase Still Likely
A divided Federal Reserve left its policy interest rate unchanged to await more evidence of progress toward its goals, while projecting that an increase is still likely by year-end.
“Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in its statement Wednesday after a two-day meeting in Washington. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”
The sixth straight hold extends U.S. central bankers’ run of getting cold feet amid risks from abroad and inconsistent signs of economic strength. Now the focus will shift to December as the Fed’s likely last chance to raise interest rates in 2016 -- a move that depends on how the economy, inflation and markets fare in the months surrounding a contentious presidential election.
“The statement is much more hawkish than I thought it would be,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York, who said he expects a rate increase in December. “That just tells you they are revving up the engines.”
Three officials, the most since December 2014, dissented in favor of a quarter-point hike. Esther George, president of the Kansas City Fed, voted against the decision for a second straight meeting. She was joined by Cleveland Fed President Loretta Mester -- in her first dissent -- and Eric Rosengren, head of the Boston Fed, whose previous dissents called for easier policy.
The central bank’s so-called “dot plot”, which it uses to signal its outlook for the path of interest rates, showed that officials expected one quarter-point rate increase this year. Three policy makers projected that keeping rates unchanged this year would be most appropriate. Officials scaled back expectations for hikes in 2017 and over the longer run.
Policy makers see two rate hikes next year, down from their June median projection of three.
Dollar sags after Fed stands pat, signals less aggressive rate rises
The dollar hit a near 4-week low against the yen on Thursday after the U.S. Federal Reserve kept monetary policy steady and projected a less aggressive path for interest rates hikes in coming years.
The dollar index, which measures the greenback's value against a basket of six major currencies, touched a low of 95.398 .DXY =USD at one point on Thursday, its lowest level since Sept. 16.
Oil extends rise after surprise U.S. crude stock draw
Oil prices extended gains from the previous session in Asian trading on Thursday after a surprise third consecutive weekly U.S. crude inventory draw tightened the market.
U.S. West Texas Intermediate (WTI) crude oil futures CLc1 were trading at $45.59 per barrel at 0045 GMT, up 25 cents from their previous close. The contract had already gained as much as 3 percent the day before.
Prices jumped after the U.S. Energy Information Administration (EIA) surprised the market with a 6.2 million barrel fall in crude oil inventories last week to 504.6 million barrels. Forecasters in a Reuters poll had expected a 3.4 million-barrel build. [EIA/S]
Reference: Reuters, Bloomberg
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