Fed Leaves Benchmark Interest Rate Unchanged
“Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up”.
“This will not be like traditional rate-hike cycles - it will not only be gradual, but it’s to a much lower destination”, Richard Clarida, global strategic advisor at Pacific Investment Management, said in an interview on Bloomberg Television.
WALL STREET: The stock market fell for a fifth straight day Wednesday as investors set aside the Federal Reserve’s interest rate decision and remained focused on next week’s vote on whether Britain will remain in the European Union or opt for a “Brexit” from the EU.
For weeks, the Fed had been expected to consider raising rates at its June meeting.
Fed Chair Janet Yellen and her team raised the benchmark rate in December 2015 from the virtual zero rate for 7 years.
While the Fed maintains its ability to “hike when it sees fit”, Mr Clarida said it is yet to provide a framework to understand how or when such a decision is made.
Then the May jobs report, which came out June 3, seemingly wiped out the chance of a rate move. And some Fed watchers expressed confusion about the central bank’s approach to rates.
Most of the Fed meeting participants expect the interest rate to remain below 1% through the end of 2016.
This could in turn affect the U.S. economic outlook and the Fed’s own monetary policy outlook, she said.
“The fact is they still want to be in a position to hike rates, but it could be one bridge too far”.
“This FOMC clearly has little stomach to raise rates”, said Stephen Stanley, an economist at Amherst Pierpont Securities.
It was the fourth straight meeting the Fed has declined to raise rates after lifting them from near zero in December 2015 in the first rate hike in almost a decade.
The Fed’s benchmark overnight lending rate remains in a range of 0.25% to 0.50%.
The central bank raised rates in December for the first time in almost a decade and initially signaled four increases were likely for 2016. It has the second-largest national economy within the 28-member group, behind Germany. Nervous investors sent markets sinking, and fears arose of a new recession. The Fed put any further rate hikes on hold. A separate survey last week showed that analysts projected two rate increases this year, while they were divided over whether the next hike would occur in July or September.
Fed officials must also weigh whether the global force of low inflation is so powerful as to continue dragging down prices in the United States even after the domestic economy has healed.
NEW YORK/LONDON Gold turned lower on Thursday, as sterling bounced higher and USA stock markets came well off their lows following the suspension of Britain’s campaign for next week’s referendum after a member of Parliament was shot dead.