US Fed meeting: Fed leaves rates unchanged; no hint on timing of next hike

The Federal Reserve is keeping interest rates unchanged in light of an uncertain job market, while offering no specifics about when its next rate hike might occur.

The Fed said in a statement Wednesday after its latest policy meeting that the pace of job growth has slowed, even as the overall economy has picked up speed.

The central bank indicated that it needs a clearer picture of economic developments before raising rates again. It noted that the consequences of a slowdown in exports have lessened.

Some economists think a July rate increase is possible if the job market rebounds and markets remain calm after Britain’s vote next week on whether to leave the European Union.

For weeks, the Fed had been expected to consider raising rates at its June meeting. That view was encouraged by the minutes of its most recent meeting in April. The minutes suggested that a rate hike was likely if hiring and economic growth strengthened and inflation showed signs of accelerating toward the Fed’s 2 percent target rate.

But this month, the government caught the financial world off guard when it said employers added just 38,000 jobs in May- the weakest gain in five years – and that job growth averaged only 116,000 the past three months, down from 230,000 for the 12 months ending in April.

Suddenly, expectations for a rate hike this month declined. And some Fed watchers expressed confusion about the central bank’s approach to rates.

Fed officials contend that they have long stressed that their rate policies are not on a pre-set course but rather are ”data dependent.” In a speech last week, Chair Janet Yellen said that while the U.S. economy looks fundamentally solid, there were too many uncertainties to give a specific timetable for upcoming rate hikes.

Among the uncertainties she highlighted is the referendum next week in Britain over whether to leave the EU. A yes vote could roil markets, and the Fed wouldn’t likely want to further unnerve investors with a rate hike just a week before that vote.

Some economists say the Fed could be ready to raise rates in July, assuming that the dismal May employment report is followed by a much stronger June number and investors don’t panic after the vote in Britain. Other analysts think the economic outlook will still be too cloudy for a July rate hike and are pointing to September as the most likely time for a Fed move.

In addition to the May jobs report, other economic barometers have also sowed doubts – from tepid consumer spending and business investment to a slowdown in worker productivity to stresses from China other major economies.
And inflation remains below the Fed’s target.

The Fed raised its key policy rate modestly in December from a record low near zero, where it had been since the depths of the Great Recession in 2008. And it projected that it would raise rates four more times in 2016.

But as the year began, oil prices plunged, and concerns escalated about China, the world’s second-largest economy.
Nervous investors sent markets sinking, and fears arose of a new recession. The Fed put any further rate hikes on hold.

Yellen and other Fed officials have said they expect to raise rates gradually after the job market shows further signs of improvement, including higher pay increases and inflation moving closer to the Fed’s target.

Fed officials keep stressing that only when the latest data shows the economy edging consistently toward full health will they resume raising rates.

Conversely, the Fed also wants to take care not to lead investors to inflate the prices of stocks and other assets out of a mistaken belief that it will keep rates ultra-low well into the future. The need to discourage such excessive risk-taking is why even analysts who think the economy still faces challenges predict that the Fed will nevertheless raise rates at least once this year.

ALSO READ: US Fed meeting: Janet Yellen keeps rates unchanged; check out the top 5 key takeaways

Highlights from Janet Yellen’s Speech:

* Yellen says does need to make sure there is sufficient momentum in economy before raising rates again.

* Yellen says reasons for labor market slowdown are difficult to understand

* Yellen says can’t take stability of longer run inflation expectations for granted

* Brexit would have consequences for the US economic outlook

* Brexit is an uncertainty that we factored into today’s decision

* Despite lacklusture economic growth, job market continued to recover in the first half of the year

* The Committee continues to expect that the labour market will continue to strengthen in the coming years

* Yellen says inflation outlook rests on judgement that long-run expectations stay anchored

* Yellen says indicators for second quarter have pointed to sizable rebound

* Average earnings are increasing, so wage growth may finally be picking up

*As the labour market strengthens further, we expect inflation to rise to 2% in the next few years

*As a Committee we never discuss the number of rate hikes

Wall St falls as Fed holds steady and Brexit vote looms

Wall Street fell for a fifth straight session on Wednesday after the Federal Reserve left interest rates unchanged and investors stewed over an impending vote in Britain on whether to leave the European Union.

Major U.S. stock indexes spent most of the day with gains but abruptly fell late in the session, bringing the S&P 500’s loss in the past week to 2.2 percent, in large part because of fears that a fractured EU could critically damage an already feeble global economy.

It was the S&P 500’s longest losing streak since the five-day decline that culminated in its 2016 low on Feb. 11.

While the U.S. central bank put off an immediate rate hike, it lowered its economic growth forecast and signaled it still plans two rate increases this year.

Traders had not expected a rate increase this month by the Fed’s Federal Open Market Committee, or FOMC, but they have been eager for clues about the health of the economy and the trajectory of future hikes.

Investors have become more nervous ahead of a vote in Britain next week on whether to leave the EU, with recent opinion polls indicating growing support for such a move.

“It is certainly one of the uncertainties that we discussed and that factored into today’s decision,” Fed Chair Janet Yellen said at a news conference.

The CBOE market volatility index, Wall Street’s “fear gauge”, fell 1.8 percent for the day but was still at elevated levels not seen in over three months.

“This is an FOMC announcement that really speaks to a global weakness and the bottom line is it underscores the fact the U.S. is not an island and the global markets and economy are more interconnected than they have ever been,” said Peter Kenny, Senior Market Strategist at Global Markets Advisory Group in Berkeley Heights, New Jersey.

The Dow Jones industrial average lost 0.2 percent to end at 17,640.17 and the S&P 500 fell 0.18 percent to 2,071.50.

The Nasdaq Composite dropped 0.18 percent to 4,834.93.

About 6.8 billion shares changed hands on U.S. exchanges, about average over the past 20 trading days, according to Thomson Reuters data.

Six of the 10 major S&P sectors dipped, led lower by the utilities index, down 0.71 percent.

Chipmaker Intel fell 1.65 percent and provided the biggest drag on the S&P 500. So far in 2016, the S&P 500 is up 1 percent.

Advancing issues outnumbered decliners on the NYSE by 1,833 to 1,189. On the Nasdaq, 1,536 issues rose and 1,271 fell.

The S&P 500 index showed 12 new 52-week highs and one new low, while the Nasdaq recorded 38 new highs and 37 new lows.