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29-10-2015, 06:06 AM
Central bankers have been held hostage by financial mkts and they need to restore confidence and wealth effect before they can move on...
US Fed keeps 2015 rate hike on table
[Image: 290120-3be768e0-7dac-11e5-a3c1-26b6cf13ef5f.jpg]
US Federal Reserve chair Janet Yellen. Changes in the Fed statement hint a rate hike is possible in December.Source: Reuters
[b]US Federal Reserve officials have kept short-term interest rates unchanged near zero, but they opened the door more explicitly than before to raising rates at their final 2015 meeting in December.[/b]
In a statement following a two-day policy meeting, Fed officials suggested they had become less concerned in recent weeks about turbulent financial markets and uncertain economic developments overseas. They also pointed specifically to the next meeting as a time when they would be assessing whether it was finally time to raise rates.
“In determining whether it will be appropriate to raise the target (fed-funds interest rate) at its next meeting, the (Fed) will assess progress — both realised and expected — toward its objectives of maximum employment and 2 per cent inflation,” the Fed said in its statement.
The explicit reference to the next meeting effectively meant the Fed’s decisions about rates are now being made on a meeting-to-meeting basis, though Fed officials stopped short of committing to an immediate move.
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Officials struck from the statement a sentence introduced in September that pointed to market turbulence and global developments as potential restraints on US economic activity.
That reduces an impediment officials had stressed in September as standing in their way.
The central bank said that it is still monitoring financial markets and developments abroad, meaning it isn’t yet confident these threats — such as the economic slowdown in China — have fully receded.
Still, officials pointed to “solid” growth rates in consumer spending and business investment and improvements in housing as bright spots in recent economic developments.
The Fed pushed short-term interest rates to zero in December 2008 and has kept them there for 82 straight months.
Officials began the year signalling a rate increase was likely in 2015 as the job market improved and slack in the economy diminished. Though job growth largely lived up to hopes, inflation has been lower than officials expected, stalling the Fed’s plans to raise interest rates. Their plans were further undermined by market volatility in August and uncertainty about the path of China, the world’s second-largest economy, and other emerging markets.
The air has cleared a bit since September. For example, the Dow Jones Industrial Average is up 5 per cent since the last meeting, a sign financial-market stress has dissipated. Yields on 10-year Treasury notes have dropped, as has the cost of investment-grade corporate debt, while the dollar has strengthened.
Moreover, the People’s Bank of China has cut its own interest rates and the European Central Bank has signalled it could extend its bond-buying program, steps that might ease some of the Fed’s worries about the global economic outlook.
However, the Fed’s plans could be scrambled again.
US economic data have been unsteady, a point officials acknowledged in their statement.
Most notably, the Labor Department issued a disappointing jobs report earlier this month. The Fed said job gains had slowed. On balance, however, Fed officials didn’t appear very alarmed about the soft jobs report.
“Labor market indicators, on balance, show that underutilization of labour resources has diminished since early this year,” the Fed said.
Other obstacles potentially stand in the Fed’s way. Officials noted in their statement that expectations for future inflation — as measured in bond markets — had receded “slightly” in recent weeks, a sign investors don’t expect a rebound in consumer prices soon.
Fed officials watch inflation expectations closely, because expectations can affect the prices individuals, businesses and investors actually demand for goods and services.
Fed officials said, as they have before, that they won’t raise rates until they become “reasonably confident” inflation will raise to their 2 per cent objective after running below it for more than three years.
They also want to see “some further improvement” in the job market.
Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissented, as he did in September. He wanted to raise the Fed’s target interest rate, called the federal-funds rate, by a quarter percentage point.
The Fed’s next meeting is December 15-16, the final meeting before year-end. Officials will update their forecasts for the economy before the meeting, and Fed Chairwoman Janet Yellen will hold a news conference after its conclusion.
* Comparing the US Fed’s views on the economy, from its meeting overnight and its meeting in September.
HINT ON TIMING?:
Now: Fed policymakers add a specific reference to their December meeting: “In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress — both realised and expected — toward its objectives of maximum employment and 2 per cent inflation.”
Then: “In determining how long to maintain this target range, the committee will assess progress — both realised and expected — toward its objectives of maximum employment and 2 per cent inflation.”
HIRING:
October: The Federal Reserve is taking a less optimistic view: “The pace of job gains slowed and the unemployment rate held steady.”
September: “The labour market continued to improve, with solid job gains and declining unemployment.”
ECONOMY:
October: The Fed sees some parts of the economy doing better than last month: “Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further.”
September: “Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further.”
GLOBAL ECONOMY:
October: Fed policymakers have dropped language that suggested a global slowdown threatens the US economy: “The committee continues to see the risks to the outlook for economic activity and the labour market as nearly balanced but is monitoring global economic and financial developments.”
September: “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 committee continues to see the risks to the outlook for economic activity and the labour market as nearly balanced but is monitoring developments abroad.”
Wall Street Journal, AP
US Fed keeps 2015 rate hike on table
- JON HILSENRATH
- THE WALL STREET JOURNAL
- OCTOBER 29, 2015 6:36AM
[Image: 290120-3be768e0-7dac-11e5-a3c1-26b6cf13ef5f.jpg]
US Federal Reserve chair Janet Yellen. Changes in the Fed statement hint a rate hike is possible in December.Source: Reuters
[b]US Federal Reserve officials have kept short-term interest rates unchanged near zero, but they opened the door more explicitly than before to raising rates at their final 2015 meeting in December.[/b]
In a statement following a two-day policy meeting, Fed officials suggested they had become less concerned in recent weeks about turbulent financial markets and uncertain economic developments overseas. They also pointed specifically to the next meeting as a time when they would be assessing whether it was finally time to raise rates.
“In determining whether it will be appropriate to raise the target (fed-funds interest rate) at its next meeting, the (Fed) will assess progress — both realised and expected — toward its objectives of maximum employment and 2 per cent inflation,” the Fed said in its statement.
The explicit reference to the next meeting effectively meant the Fed’s decisions about rates are now being made on a meeting-to-meeting basis, though Fed officials stopped short of committing to an immediate move.
Start of sidebar. Skip to end of sidebar.
End of sidebar. Return to start of sidebar.
Officials struck from the statement a sentence introduced in September that pointed to market turbulence and global developments as potential restraints on US economic activity.
That reduces an impediment officials had stressed in September as standing in their way.
The central bank said that it is still monitoring financial markets and developments abroad, meaning it isn’t yet confident these threats — such as the economic slowdown in China — have fully receded.
Still, officials pointed to “solid” growth rates in consumer spending and business investment and improvements in housing as bright spots in recent economic developments.
The Fed pushed short-term interest rates to zero in December 2008 and has kept them there for 82 straight months.
Officials began the year signalling a rate increase was likely in 2015 as the job market improved and slack in the economy diminished. Though job growth largely lived up to hopes, inflation has been lower than officials expected, stalling the Fed’s plans to raise interest rates. Their plans were further undermined by market volatility in August and uncertainty about the path of China, the world’s second-largest economy, and other emerging markets.
The air has cleared a bit since September. For example, the Dow Jones Industrial Average is up 5 per cent since the last meeting, a sign financial-market stress has dissipated. Yields on 10-year Treasury notes have dropped, as has the cost of investment-grade corporate debt, while the dollar has strengthened.
Moreover, the People’s Bank of China has cut its own interest rates and the European Central Bank has signalled it could extend its bond-buying program, steps that might ease some of the Fed’s worries about the global economic outlook.
However, the Fed’s plans could be scrambled again.
US economic data have been unsteady, a point officials acknowledged in their statement.
Most notably, the Labor Department issued a disappointing jobs report earlier this month. The Fed said job gains had slowed. On balance, however, Fed officials didn’t appear very alarmed about the soft jobs report.
“Labor market indicators, on balance, show that underutilization of labour resources has diminished since early this year,” the Fed said.
Other obstacles potentially stand in the Fed’s way. Officials noted in their statement that expectations for future inflation — as measured in bond markets — had receded “slightly” in recent weeks, a sign investors don’t expect a rebound in consumer prices soon.
Fed officials watch inflation expectations closely, because expectations can affect the prices individuals, businesses and investors actually demand for goods and services.
Fed officials said, as they have before, that they won’t raise rates until they become “reasonably confident” inflation will raise to their 2 per cent objective after running below it for more than three years.
They also want to see “some further improvement” in the job market.
Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissented, as he did in September. He wanted to raise the Fed’s target interest rate, called the federal-funds rate, by a quarter percentage point.
The Fed’s next meeting is December 15-16, the final meeting before year-end. Officials will update their forecasts for the economy before the meeting, and Fed Chairwoman Janet Yellen will hold a news conference after its conclusion.
* Comparing the US Fed’s views on the economy, from its meeting overnight and its meeting in September.
HINT ON TIMING?:
Now: Fed policymakers add a specific reference to their December meeting: “In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress — both realised and expected — toward its objectives of maximum employment and 2 per cent inflation.”
Then: “In determining how long to maintain this target range, the committee will assess progress — both realised and expected — toward its objectives of maximum employment and 2 per cent inflation.”
HIRING:
October: The Federal Reserve is taking a less optimistic view: “The pace of job gains slowed and the unemployment rate held steady.”
September: “The labour market continued to improve, with solid job gains and declining unemployment.”
ECONOMY:
October: The Fed sees some parts of the economy doing better than last month: “Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further.”
September: “Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further.”
GLOBAL ECONOMY:
October: Fed policymakers have dropped language that suggested a global slowdown threatens the US economy: “The committee continues to see the risks to the outlook for economic activity and the labour market as nearly balanced but is monitoring global economic and financial developments.”
September: “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 committee continues to see the risks to the outlook for economic activity and the labour market as nearly balanced but is monitoring developments abroad.”
Wall Street Journal, AP