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US Fed keeps interest rate unchanged, says will be ‘patient’

02 February, 2019, 06:42 | Author: Sara Gill
  • Watch the Fed's Press Conference Wednesday

"We'd stress that there's a lot of dispersion around this projection-the Fed could cut rates if conditions continue to deteriorate, or it could raise rates up to three times this year if financial markets, the global economy and inflation all move higher in short order". On Friday, the employment report is scheduled at around midday which includes the Average Hourly Earnings, Non-Farm Employment Change and the Unemployment Rate reports. We provide detailed fundamental analyses of the gold market in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals.

Business and consumer confidence, and a drop in expectations for inflation, may be even more concerning to a central bank that views public psychology as an important influence on future economic outcomes.

In a statement issued after a two-day meeting of the policy-setting Federal Open Market Committee, the US central bank removed language from its December statement that referred to "some further gradual increases" in borrowing costs.

As the sell-off intensified, it also risked getting disorderly, forcing the Fed to begin changing its narrative.

Notwithstanding the continuing upbeat assessment of the U.S. economy, the worsening outlook for China and the European economy could impact upon it.

Yesterday, the FOMC published the monetary policy statement from its latest meeting that took place on January 29-30th.

The yellow metal tends to climb when lower interest rates are expected, as bullion becomes cheaper to hold in the aftermath. It will be of particular interest for forex traders to look for small changes on the comments and read between the lines.

The tone was seen as an about-face from the Fed's hawkishly received December meeting when it delivered its fourth rate increase of 2018.


After the release of the Fed's statement, US stocks added to gains, with the S&P 500 index ending the day about 1.5 percent higher, while the dollar and short-term yields fell as investors gauged an even lower probability of additional rate hikes any time soon.

The Fed also indicated it's willing to adjust the size of its balance-sheet runoff, and perhaps end it altogether, amid Wall Street worries that it contributed to the huge stock-market selloff in December.

But the unusually dovish language likely will come as a surprise.

The press conference which lasts about an hour follows the release of the FOMC statement and the interest rate decision and it's divided in two parts.

"In and of itself, the text of the Fed's balance sheet statement wasn't markedly different from public comments made over the past month by Chair Powell himself and several of his deputies, but it was seen as an admission that the end of the balance sheet runoff is closer than some FOMC participants thought previous year".

Now, in light of such global pressures, the Powell Fed is now signaling that it's in no hurry to resume raising rates. And all this happened even though USA labor market indicators have continued to go from strength to strength. This kept interest rates at record lows and pumped money into financial markets-the key factor in the escalation of share prices after they hit their low point in March 2009.

Should the Fed made a decision to hike rates in 2019, Wang said he felt the markets could handle an increase or two. Eric Winograd, senior economist at AB, described it as a completion of the Fed's pivot from policy "normalization" to a "data-dependent" stance, which he termed "entirely appropriate" given signs the economy is slowing. Like its U.S. counterpart, the European Central Bank had ended its bond-buying stimulus program. Although, we don't think this will have any meaningful impact on the United States dollars.

But, that was partly due to the fact that the participation rate had also increased by two points that same month. In other words, the Fed left open the possibility that the next rate move could be to cut interest rates.

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