Published: Sat, February 02, 2019
Money | By Ethel Goodwin

US Fed keeps interest rates unchanged, to be patient on future hikes

US Fed keeps interest rates unchanged, to be patient on future hikes

"The market liked what they heard from the Fed, as both the broader market and gold spiked on what were interpreted as dovish statements", Brian Leni, founder of Junior Stock Review, told the Investing News Network.

Taken together with the balance sheet announcement, the Fed's statement gives maximum flexibility to a central bank criticized by investors who saw the Fed itself becoming a source of market turbulence that was reflexively tightening policy even as economic risks mounted.

The Fed's shift Wednesday added up to giving the markets all the candy they wanted, in the estimation of Peter Boockvar, chief investment strategist of Bleakley Advisory Group.

In support of the goals to foster maximum employment and price stability, the Federal Open Market Committee made a decision to maintain the target range for the federal funds rate at 2.25 per cent to 2.5 per cent, the central bank said in a statement after concluding a two-day policy meeting, Xinhua reported. What last night's events amount to now is the explicit assurance, written in black-and-white, that the Fed will tone-down its hawkishness.

Federal interest rates are already at a 10-year high following a hike in December, having spent the better part of a decade near zero in response to the Great Recession.

Wall Street rallied, with dealers there also cheering healthy earnings from big-hitters, including Facebook and Boeing. The Fed meeting ignited a rally in stocks and precious metals.

The April gold contract was up 30 cents USA at US$1,315.50 an ounce and the March copper contract was up 4.25 cents at US$2.77 a pound. Overall, the news lined up in the favour of the bulls.

Oil prices rose after USA government data showed signs of tightening supply and as investors remained concerned about supply disruptions following US sanctions on Venezuela's oil industry.

The stock market has staged a solid rebound this month off of the December lows. CPI data was released, and surprised modestly to the upside, printing at 1.8 per cent, against a 1.7 per cent forecast.

Job gains have been strong, on average, in recent months, and the unemployment rate has remained low.

It was a better outcome, to be sure, and one that will keep at bay temporarily the doomsayers suggesting the Australian economy is in a deteriorating condition.

Microsoft Corp and Facebook Inc, set to report after the closing bell, were up more than 2 percent. Against a busy macroeconomic backdrop, and further risk events to come before the week concludes, SPI Futures are indicating a 17-point jump at the open for the ASX200.

In other words, the Fed would return to asset purchases in order to again pump ultra-cheap money into the financial system.

Traders will be watching for any developments out of trade talks between the USA and China which resume today in Washington, as well as a policy statement in the afternoon from the Federal Reserve. The S&P 500 index was up 41.05 points at 2,681.05, while the Nasdaq composite was up 154.79 points at 7,183.08.

In New York, BHP +3.4% Rio +1.6% Atlassian +1.7%.

The FTSE 100, the Dax Index and the CAC Index are all up at least 0.5%.

Shooting for inflation above -- but not too far above -- target could help cement critical inflation expectations at 2 percent after years in which price rises fell short of that level. USD/JPY followed United States yields lower to 108.50 but then recovered partially, to 108.85.

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