Published: Sun, September 25, 2016
Economy | By Melissa Porter

Divided Fed holds rates steady --> Divided Fed holds rates steady

Fed officials also indicated that they still expect interest rates to rise by year's end, although not as quickly as they had previously expected.

The FOMC noted in its statement before Yellen's speech that it "judges that the case for an increase in the federal funds rate has strengthened", signaling a rate hike could come before the end of the year.

The BIST 100 index advanced sharply to 78,856.15 points, up 940.26 points or 1.21 percent, at opening, which was in line with many global stock markets since the Fed's monetary policy members opted to wait a little longer for more positive data before a rate hike, which is seen as vitally important for markets worldwide.

An economist told Insider Louisville that economic growth will accelerate next year and that the Federal Reserve will not raise interest rates until December at the earliest. Fed Chair Janet Yellen said USA growth looked stronger and rate increases would be needed to keep the economy from overheating and fuelling high inflation.

Global stock indexes rose and the dollar fell to its lowest against the yen in almost a month yesterday after the Bank of Japan overhauled its monetary policy to target interest rates and ahead of a Federal Reserve decision.

The BOJ maintained its 0.1% negative interest rate, but abandoned its base money target. The Bank of Japan tried another tack with its decision earlier on Wednesday, saying it would aim to keep 10-year government bond yields at zero.

Some in the market were caught off-guard by the strength of the relief rally. Major indices jumped with the gains rising in the last half hour of trading to 6am Sydney time.

The Dow Jones Industrial Average rose by 100 points after the announcement, at 6am New Zealand time. The Nasdaq composite rose 53.83 points, or 1 percent, to a record 5,295.18.

USA stock prices rose after the Fed released its statement.

Bloomberg's United States dollar gauge, which tracks the greenback against 10 major peers, slipped 0.2 per cent, after sliding 0.7 per cent in the last session.

USA crude (WTI) futures advanced 0.9 per cent to $45.72 after surging 4.4 per cent on Wednesday.

In commodity markets, gold traded down 0.2 per cent at $1,333.20 an ounce, having climbed 1.7 per cent as the USA dollar declined on Wednesday.

"The highly-unusual 7-3 FOMC vote speaks to the complexity facing the Fed operating in a prolonged period of highly unbalanced policy mix", Allianz's Mohamed El-Erian said.

The Fed also projected a less aggressive rise in interest rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9 percent from 3.0 percent.

The Fed's new interest rate projection for 2017 left rates centred at 1.125%, down from 1.625 per cent in June.

Many Fed-watchers had expected no rate increases until November.

The economic outlook is now seen as weaker than in the Fed's last set of predictions in June.

Later this morning the RBA's new team of Governor, Phil Lowe and deputy, guy Debelle will front the House of Representatives Economics Committee in Sydney for their first appearance.

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