Fed keeps rates unchanged, says ‘monitoring’ global economy

This follows last month’s rate change when the Fed increased its target rate from 0-0.25 up to 0.25-0.50, which was the first increase in seven years.

Global markets had been closely watching the meeting of the Fed’s Open Market Committee (FOMC) for strong indication whether it would raise interest rates in March given the current volatility and low oil prices.

The Federal Reserve on Wednesday expressed less eagerness to hike interest rates, as the central bank showed concern over both the economy and the faltering stock market.

The statement mentions that labor market conditions have improved further, despite the fact that economic growth slowed late past year.

The Fed aims to keep prices rising at about 2 percent a year, but it has consistently fallen short since the recession that lasted from the end of 2007 to the middle of 2009.

The Dow dropped 1.38 percent, and the S&P 500 lost 1.09 percent, while the Nasdaq shed 2.18 percent.

USA stocks moved back into the red after the Fed left its interest rates unchanged.

Prior to the FOMC statement, USA stock prices were buoyed by a rebound in crude prices following data showing a jump in weekly demand for oil products and news Russian Federation was discussing a possible output pact with OPEC. “Markets still love cheap money, so lower rates for longer – or indeed stimulus – remains bullish”, Mike van Dulken, head of research at Accendo Markets in London, said in an e-mail. The Fed, however, only made the barest of mentions about global markets in its policy statement yesterday. Fresh worries about the health of the Chinese economy and the slump in oil prices have helped spawn a major selloff in US equities.

Futures markets are indicating virtually no chance that the Fed will stay on that course, with the more likely scenario being one or two hikes ahead.

Likewise, the group’s description of increases to household spending and business fixed investment were changed from “solid” to “moderate”. You can see why Fed officials would be loathe to put too much stock in the market’s response and you should be too.

In the statement Wednesday, the Fed said it will assess a wide range of information including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments to decide the pace of the future rates hike.

In other news, Italian Prime Minister Matteo Renzi on Wednesday defeated the first of two no-confidence motions brought by the opposition in parliament which accused the government of having a conflict of interest during the rescue of four small banks a year ago, Reuters reported. The move amounted to only a small rise in the Fed’s still-extremely low target rate for overnight bank lending.

Fed Chairman Janet Yellen did not hold a post-meeting news conference Wednesday and isn’t scheduled to speak publicly until she appears before the House Financial Services Committee on February 10 to deliver the Fed’s semiannual monetary-policy report to Congress.

Poor outlooks from Apple, Boeing pull US stocks lower

 

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