Wall St Ends up Sharply after Fed Signals Patience

31 January, 2019, 23:58 | Author: Billie Castillo
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The committee chose to keep interest rates unchanged as expected, however regarding the rate hike plans for 2019 - they changed their stance from delayed rate hikes to patient wait and see approach.

The FOMC dropped previous language calling for "some further gradual increases" in interest rates and opened the door for the next move to be either up or down, as it cited "global economic and financial developments and muted inflation pressures".

In a separate release from its policy statement, the USA central bank also said while it was continuing its monthly balance sheet reduction, it was prepared to alter the pace "in light of economic and financial developments" in the future.

The Fed said it would retain an "ample" supply of reserves and could adjust the pace of the sell-off if the economy deteriorates.

"What Apple is showing us is that when expectations have already come down and aren't getting any worse, then the markets have room to bounce", said Tom Plumb, Chief Investment Officer at Plumb Funds in Madison, Wisconsin.

The Fed's policy decision was unanimous.

Bond prices fell. The yield on the 10-year Treasury rose to 2.73 percent. But it removed language from its December policy statement that risks to the outlook were "roughly balanced".

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The Fed's policy statement indicates the U.S. central bank will remain on a dovish path, which is very supportive for risk assets, at least on the short term, said Putri Pascualy, managing director for PAAMCO in Irvine, California. Asked what would prompt another rate hike, Powell said: "I would want to see a need for further rate increases, and for me, a big part of that would be inflation".

The Australian dollar has surged to its two-month high, as the greenback weakened after the US Federal Reserve decided keep interest rates on hold.

"Uncertainty is not the friend of business", Powell said. And by indicating flexibility on the runoff in its balance sheet, the Fed implicitly acknowledged the impact the reduction of its government securities' holdings was having on the private credit and equity markets, and by extension, on the economy. CBC News will stream the press conference live. Fed policy makers had earlier projected two increases this year.

Some analysts take the Fed's latest comments to mean that the body will not raise rates in March either.

Officials gathered in Washington with less visibility on the economy after a five-week government shutdown delayed the release of some statistics including December retail sales and fourth-quarter gross domestic product. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier past year.

The US central bank said continued economic and job growth was still "the most likely" outcome.

As the central bank does every January now, the Fed also published a separate statement on its longer-run goals and policy strategy.

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