Fed holds rates steady, sees economy on track


NEW YORK (Reuters) – The U.S. Federal Reserve held interest rates steady on Thursday and said ongoing strong job gains and household spending had kept the economy on track.

“The labor market has continued to strengthen and … economic activity has been rising at a strong rate,” the Fed said in its latest policy statement, leaving intact its plans to continue raising rates gradually.

The statement reflected little change in the U.S. central bank’s outlook for the economy since the last policy meeting in September, with inflation remaining near its 2 percent target, unemployment falling and risks to the economic outlook appearing to be “roughly balanced.”

MARKET REACTION:

STOCKS: The S&P 500 pared slight losses and was last down 0.21 percent. The Dow was last up 0.1 percent. BONDS: The 10-year U.S. Treasury note yield rose to 3.2373 percent and the 2-year yield rose to 2.9732 percent.

FOREX: The dollar index was up 0.59 percent.

COMMENTS:

BRAD MCMILLAN, CHIEF INVESTMENT OFFICER, COMMONWEALTH FINANCIAL NETWORK, WALTHAM, MASS

“I read the statement and I saw the word strong three times. The only real whisper of concern was that business investment had moderated. “

“What the statement overall signals is that they’re still on track to raise rates. December is in the plan and they don’t see any reason to slow or stop the rate increases.”

“This is very much in line with what the market expected. I see the market today walking back a little from the strong gains yesterday. There’s no real news in the statement.”

JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VIRGINIA

“Other than highlighting that business fixed investment has moderated some from earlier in the year, that’s the only part of the statement that has really changed.”

“The Fed has recognized that there is one part of the economy that is slowing a little bit, but it is not deterring them from their gradual increase language. Not yet anyway. We’ll see if that materializes in December when the expected rate increase was to happen.”

“There is really nothing to point to what the market had hoped, that there would be a more dovish stance. So I think this is more of what we call a hawkish hold.”

“Markets have been pushing the Fed, I think, to reconsider its path of rate increases. In October, we had this really large market decline and some had posited that it would have an influence on the Fed’s decision to increase rates in December. I never thought that, and the Fed rarely ever uses short-term market volatility to dissuade it from its path. So I think that was false hope, and this is sort of steady as she goes.”

TOM SIMONS, MONEY MARKET ECONOMIST, JEFFERIES, NEW YORK:

“There was very little change in the statement, which was probably as expected. The changes that did come through are consistent with the GDP data that was released in late October. The characterizations of employment and inflation are also consistent with the data and also consistent with continued expectations of a rate hike in December. There has been no impact on the Treasury market. Aside from coming in as expected, it’s also along the continuum of policy that has been communicated for a long time now.”

BORIS SCHLOSSBERG, MANAGING DIRECTOR OF FX STRATEGY, BK ASSET MANAGEMENT, NEW YORK

“The Fed has really kept to expectations. The only surprise here is that they weren’t more hawkish. There were a couple words that were more muted – that business investment had ‘moderated’ from its earlier pace. But apart from that they have not signaled any warning signs at all.”

“The dollar had rallied into the statement, so it’s not clear how much more juice it will get with the Fed coming in as expected.”

“There is no change in Fed policy – they’re going to keep raising interest rates by 25 basis points until something changes.”

Americas Economics and Markets Desk; +1-646 223-6300

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