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Published: Fri, September 23, 2016
Economy | By Melissa Porter

Fed Leaves Rates Unchanged, Statement Signals December Hike


Ahead of the announcement, Lawrence Summers, former Director of the NEC for President Obama, fired off a series of tweets urging the Fed not to raise.

But no one knows for sure.

But this projection was cut in half at the Fed's March meeting, when officials indicated they'd raise their benchmark rate only twice in 2016. The market's trust in central banks is low as policy makers are running out of ideas and more importantly ammunition for its stimulus programs.

FLAT TIRE: CarMax lost $1.05, or 1.9 percent, to $54.71 after the used vehicle dealership reported weaker than expected sales.

After the Fed statement, traders were betting on a 63 per cent chance of a December rate increase, up from 58 per cent just before the statement, Reuters reported quoting a FedWatch report.

"You've got one sort of near-term risk factor off the table for investors, and markets like certainty", Mike Bailey, director of research at FBB Capital Partners, which manages about $900 million, said by phone.

In the end, though, the Fed wasn't sufficiently satisfied that hiking rates would help the economy. Wednesday's vote showed that the chair, mindful that she and her allies represent the central bank's power base, isn't unduly bothered by a trio of dissents from regional bank presidents.

The Fed will update its quarterly economic forecasts Wednesday.

The next three FOMC meetings are scheduled for November 1-2, December 13-14 and January 31/February 1.

Seoul surged one percent, with troubled Hanjin Shipping the stand-out performer, piling on nearly 30 percent after its largest shareholder agreed to provide emergency cash to prevent it from going under.

The Federal Reserve just announced that it intends to keep the fed funds rate in the same 0.25-0.5% range it has been targeting since December 2015. "Although the unemployment rate is little changed in recent months, job gains have been solid on average". "We expect that the economy will expand at a moderate pace over the next few years", Yellen said. It now projects growth this year to be 1.8%. Look to see whether the central bank scales back that expectation.

"If the yen strengthens, the BOJ will drive rates deeper into the negative", an official at a megabank said.

The Fed expects growth will remain tepid for the next three years, the latest evidence it is pessimistic about the economy's potential to expand more quickly.

The Fed has held its target rate for overnight lending between banks in a range of 0.25 percent to 0.50 percent since December, when it raised borrowing costs for the first time in almost a decade.

While Fed chair Janet Yellen suggested U.S. borrowing costs could rise this year, policymakers cut the number of rate increases they expect this year to one from two and projected a less aggressive rise in rates both next year and in 2018.

Long run expectations for the fed funds rate also declined to 2.9% from the 3.0% forecasted in June. That was down from its March estimate that the rate would be at 3 percent after 2018.

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