USSep 22 2016

US Fed keeps rates on hold but eyes move by end of year

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US Fed keeps rates on hold but eyes move by end of year

The US Federal Reserve agreed to keep interest rates on hold at its meeting yesterday but a split amongst policymakers has raised expectations of a December rate move.

In the statement the Federal Open Market Committee (FOMC) acknowledged that “the case for an increase in the federal funds rate has strengthened” but it decided to wait for further evidence of “continued progress towards its objectives.

But some policymakers argued for an increase in the rates sooner, following improvements in employment data and a pick up in economic activity since July. With the vote split seven to three, some have suggested the Fed will introduce a further rate move before the end of the year.

Anna Stupnytska, global economist at Fidelity International, commented: “Barring significant deterioration in the data and/or big external shocks, I believe a hike in December remains highly likely. Three members of the FOMC dissented, which is a hawkish signal supporting this view. Financial conditions have eased over the course of the year, partly on the back of a weaker dollar and lower bond yields, and now at more accommodating levels than a year ago, lowering the bar for a December hike.”

Markets have reacted positively to the expected move, with both the S&P 500 and Dow Jones indices in the US gaining 1.1 per cent and 0.9 per cent respectively.

Asian markets also moved higher, with the Nikkei 225 index in Japan closing 1.9 per cent higher following yesterday’s surprise announcement from the Bank of Japan on further monetary easing measures.

Meanwhile in the UK the FTSE 100 index gained 0.5 per cent in early trading to reach 6,870.95 while European indices were also boosted, with Germany’s Dax index gaining 1.1 per cent and France’s Cac 40 index moving 0.9 per cent higher.