Emerging market equities rose to one-month highs on Friday and currencies mostly gained against the dollar after the Federal Reserve left USA interest rates unchanged.
The Fed’s fresh economic projections showed 13 of 17 policymakers still foresee raising rates at least once in 2015, though that is down from 15 at the last forecast made in June.
It’s too soon. By the October meeting, the Fed would have just one month’s worth of new data, and there’s not much that would have changed in the economy.
Odds have also risen that the Fed will now not hike rates until 2016, and RBS says the markets are currently pricing the first full rate rise for March but odds for December were still above 60 percent.
At a scheduled press conference after the decision, the Fed’s chair Janet Yellen noted the fact that the USA job market has improved and inflation is still below the central bank’s target but warned that the outlook overseas had become more unstable of late. It sees the unemployment rate hitting 4.8 percent next year and remaining at that level for as long as three years. “With a modest slowdown occurring, what the Fed is effectively doing is they are handing off the reins of monetary policy to the rest of the world“, Porcelli said. In its statement, the Fed said that “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term”.
“The Fed has consistently projected rates as moving higher than what the market does”, said Scott Minerd, who oversees US$240 billion as global chief investment officer at New York-based Guggenheim Partners LLC.
Signs of weaker growth and stock market turmoil in China have led to fears among investors about USA economic growth.
Both he and Boston College economics professor Robert Murphy said they anticipate a December rate hike, since the Fed “doesn’t want to surprise the markets”, Yaylaci said, “especially in the midst of current financial volatility”. Currently, unemployment is 5.1%.
It also slightly lowered its forecast for inflation for the coming two years, expecting 1.7 percent next year and 1.9 percent for 2017, still below the Fed’s policy target of 2.0 percent. A higher Fed rate would eventually send rates up on many consumer and business loans.
Oil prices had surged on Wednesday after the US Department of Energy revealed a 2.1 million barrel drop in inventories, fuelling hopes of a pick-up in demand in the world’s biggest economy.