Markets

Relief Rally in Asia after Fed Leaves Interest Rates Unchanged'

Relief Rally in Asia after Fed Leaves Interest Rates Unchanged'

Wall Street isn't expecting the Fed to boost rates today, and the CME Group says futures markets are only pricing in a 15% chance the Fed will hike rates for the first time this year, after raising rates back in December for the first time in almost 10 years.

But the Fed has been facing increasing criticism for maintaining its low interest rate policy despite the fact that the recession ended more than seven years ago.

"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 Fed said in the statement.

Officials want to wait for more evidence of progress on jobs and inflation - which remains low - before a hike.

"Our decision does not reflect a lack of confidence in the economy", said Federal Reserve Chair Janet Yellen during a post-meeting press conference.

Fed officials also cut their 2016 growth forecast for the US economy to 1.8%, from a 2.0% projection in June, and lowered their long-term view on the growth rate to 1.8% from 2%.

Officials announced Wednesday at a meeting of the Federal Open Market Committee that the Federal Reserve will keep interest rates steady between 0.25 and 0.50 percent, while affirming a favorable outlook for the economy as a whole.

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In Europe, the yield on Germany's 10-year bond known as the bund, inched higher by 0.9 basis point to negative 0.082%, according to Tradeweb. Now, most analysts expect it to resume that prior course unless economic conditions improve or deteriorate much more than expected. Major indices jumped with the gains rising in the last half hour of trading to 6am Sydney time.

The Dow Jones industrial average closed up 163.74 points, or 0.9 per cent, to 18,293.7, the S&P 500 gained to finish 23.36 points, or 1.09 per cent higher, to 2,163.12, while the Nasdaq Composite ended up 53.83 points, or 1.03 per cent, to close at 5,295.18, a record high. Wall Street indices moved higher and gold moved to highs above $1,330.

The dollar index, which measures the greenback's value against a basket of six major currencies, touched a low of 95.373 at one point on Thursday, its weakest level since September 16. It was trading around 76.25 United States cents. United States gas prices meanwhile are still around 3 year highs. Core inflation, which excludes more volatile prices such as energy, is expected to hit 1.7 percent for this year. This relief rally is a sign that investors had previously been highly concerned about a looming United States interest rate hike.

In its updated forecasts, it lowered expectation for the long-range level of its benchmark interest rate to 2.9 per cent from three per cent in June and 3.5 per cent before then.

The forecasts have changed in part because the Fed has reassessed its view of the economy's longer term outlook and formed the judgment that rates will need to be lower to keep growth on an even keel.

Here tonight to help us understand the latest pronouncements from the Fed are: Edward Stuart, professor emeritus of economics at Northeastern Illinois University; and Michael Miller, associate professor of economics at DePaul University's Driehaus College of Business.


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