Fed rate review: USA central bank sending out mixed message

Fed rate review: USA central bank sending out mixed message

The dollar has begun to pare its early gains against its major rivals Wednesday afternoon, following the conclusion of the Federal Reserve's policy meeting. "The market is still a bit too long euros and remains vulnerable", she said.

The central bank was widely expected to hold steady on interest rates this month, despite recent data showing that inflation hit the Fed's target of 2% annual growth.

The question looming over Wednesday's meeting centered on how officials might raise rates over the coming years, which could potentially shift the central bank from a position of spurring economic growth to restricting it.

But Fed policymakers were almost evenly divided in March on whether they anticipated three more hikes this year as the economy has continued to improve and inflation is moving up.

The Fed also said risks to the economic outlook appear roughly balanced and reiterated its expectation that economic conditions will evolve in a manner that will warrant further gradual increases in interest rates. Mortgage rates climbed to their highest level in over four years last week with the 30-year fixed-rate mortgage increasing for the third consecutive week to 4.58 percent.

Fed officials would like to see the jobless rate remain steady because they expect it has already fallen below the level they regard as sustainable over the long run without fueling excessive price pressures. Investors overwhelmingly expect a rate hike at the June 12-13 policy meeting. We think this further reinforces the case for rates not be hiked at next week's MPC meeting.

"We're trying to take the middle ground, and the committee continues to believe that the middle ground consists of further gradual increases in the federal-funds rate".




Consumer prices rose 2% in March from a year earlier, according to the Fed's preferred gauge, after almost a year in which inflation softened unexpectedly. Compare that to 30 percent odds of this happening just one month ago.

He said the low fed funds rate target leaves central banks little room in the next downturn. Moreover, the wording related to the economy was somewhat cautious, describing household spending as moderate and more importantly, omitting the line stating that the outlook has improved.

The country's unemployment rate is now at a 17-year low of 4.1 per cent. Thus, the Indonesian rupiah is weakening and is gradually approaching the psychological IDR 14,000 per USA dollar level.

After the Fed's policy statement, traders of US short-term interest-rate futures on Wednesday kept bets the Fed will raise interest rates at least two more times this year.

Yet the Fed also emphasised the inflation target was "symmetric", suggesting it was not inclined to speed up its tightening plans.

Two weeks ago, Trump announced the nomination of Richard Clarida, a Columbia University economist and expert on monetary policy, as the Fed's vice chairman.

Even if Trump's selections all win approval, he would still have one more vacancy to fill on the seven-member board.

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