Economy

Federal Reserve Holds Interest Rates Steady

Federal Reserve Holds Interest Rates Steady

"In view of realized and expected labor market conditions and inflation, the Committee made a decision to maintain...the fed funds rate", the central bank wrote in its statement.

The Fed's statement followed a two-day policy meeting that ended on Wednesday where the central bank kept interest rates unchanged but expected to start winding down its massive holdings of bonds "relatively soon".

The FOMC will meet next on September 19; the meeting will be accompanied with a press conference.

The Fed bought United States treasuries and mortgage-backed securities in a programme known as "quantitative easing". It is now trying to raise costs to reduce those incentives.

Federal funds futures pointed out that traders saw a possibility of a rate hike in September at about 8 percent as well as a 48 percent increase in December.

So far, however, markets have largely shaken off the Fed's retreat. Some measures show financial conditions have eased since the Fed began its retreat.

A reduction of Fed assets is expected to nudge up mortgage and interest rates, but policymakers plan to act gradually and in a predictable manner, increasing the amount of maturing securities it will unload each month, with the whole process expected to take a few years.

Friday's US GDP data will be significant for near-term dollar confidence with the potential for an important dollar index having been posted after the Fed statement.

Since then, however, some Fed officials have expressed concern about fresh weakness in inflation.

Copper CMCU3 rose for a fourth day to the highest in more than two years, helped by expectations of solid Chinese economic growth, closing in London up 1.7 percent at $6,330 a tonne after touching $6,400, its highest since May 2015. "Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent objective over the medium term".

Too-low inflation can slow economic growth by causing people to delay purchases if they think they can buy a product for a lower price later. He voted against the quarter-point rate increases in March and in June. However, in her semi-annual testimony before Congress earlier this month, Chair Janet Yellen appeared to change her tone, sounding more cautious about the inflation outlook.

The Fed's attitude towards inflation was a blow to the U.S. dollar as it makes a third rate hike taking place later in the year more unlikely, especially following comments from Yellen earlier in the month as she expressed doubts that the slowdown in inflation was due to temporary factors.