Stocks climb, $US falls as rates held

Fed members were divided on the decision, but the majority wanted to wait on further evidence of progress in the economy before taking action on rates.

Fed governors Lael Brainard and Daniel Tarullo have both recently argued that the central bank should wait for more evidence of sustained inflation before another rate hike.

In the years ahead, the committee sees two hikes in 2017 and three each in 2018 and 2019 that would bring the funds rate to about 2.625%, assuming that each increase would come in quarter-point increments.

Three members from the hawkish Fed bloc – Esther George, Loretta Mester and Eric Rosengren – dissented from the statement, an unusual split considering Chair Janet Yellen’s adeptness at keeping the committee united.

Yellen said she expected one rate increase this year if the labor market continued to improve and “there are no major new risks that develop”.

On Wednesday, the Fed also issued updated economic forecasts, which reduced its expectation for rate increases this year to one from two. Park Jong-hong, Arirang News.

“I can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy”, Yellen said.

But that hardly changed the market’s perception on the outlook of the Fed’s policy, with interest rate futures pricing in roughly a 60 per cent chance of a rate increase by December, little changed from before the Fed meting.

And perhaps most critical for some Fed officials, inflation has yet to make significant progress in rising toward the central bank’s 2 percent target range. The won jumped 1.7 per cent and the yen rose as much as 0.2 per cent to 100.12 per dollar, after strengthening 1.4 per cent on Wednesday.

She noted that historically low rates haven’t caused the economy to overheat as some analysts feared they would.

The Philippine central bank left its benchmark interest rate unchanged at 3% on Thursday, expecting inflation to remain subdued. US shoppers retreated in August to depress retail sales after four straight monthly gains.

Experts did not expect any change in rates, saying that macroeconomic statistics, as well as lack of a significant growth in the USA level of inflation forced the central bank not to make any changes in its monetary policy.

FILE – This Monday, July 6, 2015, file photo shows a sign for Wall Street carved into the side of a building in NY. “December is their last chance to move this year”, said Brian Edmonds, head of rates trading at Cantor Fitzgerald in NY. “The Fed’s meeting has confirmed that low interest rates will last longer than previously thought”, said Shuji Shirota, head of macro economic strategy at HSBC in Tokyo.

The Bank of Japan did not cut rates further into negative territory, as expected, but could ease further at its next meeting, set for October 31 and November 1. Economists believe policymakers would avoid a rate hike in November in part because the meeting falls just days before the USA presidential election.