Published: Fri, May 04, 2018
Finance | By Cynthia Curry

The Fed holds interest rates steady

The Fed holds interest rates steady

Investors overwhelmingly expect a rate hike at the Fed's June 12-13 policy meeting. Consumption-related prices are already in 2% reference line followed by Fed to guide ir policy. So-called core prices, which exclude the volatile food and energy sectors, rose 1.9% in March, up from 1.6% in February.

But the FOMC said that "inflation on a 12-month basis is expected to run near the committee's symmetric two percent objective over the medium term".

Inflation is a growing concern as businesses are starting to raise prices. Prior to that, they had been on par with each other since December of a year ago. The phrase was dropped from the statement released on Wednesday.

The Fed lifted its benchmark rate three times previous year - while also beginning to slowly trim its balance sheet. While the initial reaction to the statement resulted in a lower USA dollar, the dollar looks destined to keep strengthening as inflation continues to accelerate. Depending on the results of the report, precious metals may lose Thursday's gains as they did following the last jobs report in March.

Fed officials find themselves at a potential turning point this year.

Markit themselves called the activity growth "subdued", admitting it was unlikely to persuade investors that the Bank of England (BoE) will move to raise interest rates at next week's Monetary Policy Committee meeting.

Analyst Omer Esiner of Commonwealth Foreign Exchange said "the Fed showed no signs that it plans on speeding up its pace of monetary policy tightening".

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"Job gains have been strong in recent months, and the unemployment rate has stayed low", the FOMC statement said. Fed forecasts show rates peaking above 3 per cent in 2020 - higher than the central bank's estimate for the likely level of the rate in the longer term. The euro was on a roll, with the European Central Bank looking set to roll back its economic stimulus in September and raise rates in the first quarter of 2019. United States growth remains robust, but the euro area economy recorded its slowest expansion in 18 months during the first quarter. They voted unanimously Wednesday to leave it there. Most officials expected three increases next year. Traders of U.S. short-term interest-rate futures on Wednesday placed bets that the Federal Reserve will raise rates at least two more times this year. That was down from 2.9 percent in the fourth quarter even though the tax cuts kicked in on January 1.

Against a basket of currencies, the dollar index was trading at 92.569, after reaching the highest since late December at 92.834.

Looking ahead, investors are now preparing for the U.S. jobless claims readings, trade balance, ISM non-manufacturing/services composite and durable goods orders results.

Labor markets remain tight. It highlighted firm corporate investment figures, while acknowledging that household spending growth had slowed recently. The rate stood at 9.4% in March 2017.

"I think a June rate hike is a done deal unless something dramatically changes between now and June". It also means the Fed would be comfortable with allowing inflation to run above 2%, since it's not a ceiling.

THE euro rose off four-month lows on Thursday, shrugging off data showing an unexpected slowdown in euro zone inflation, while elsewhere most currencies recovered some ground versus the dollar as the greenback's recent rally paused. It omitted earlier language that the economy has strengthened in recent months.

Trump is also threatening a trade war with China and other nations.

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