Brief boost for markets as Fed holds interest rates steady

Brief boost for markets as Fed holds interest rates steady

Brief boost for markets as Fed holds interest rates steady

The US Federal Reserve does not expect to raise interest rates for the rest of 2019 amid slower economic growth.

The central bank said it has ruled out interest rate increases this year and issued a dimmer outlook on the US economy.

The MBA Mortgage Applications Index increased 1.6% and the MBA's 30-year mortgage rate average was 4.55%.

The Fed also indicated no more hikes will be coming this year.

Fed chairman Jerome Powell maintained his stance that the central bank would continue to be "patient", telling a press conference: "It may be some time before the outlook for jobs and inflation calls clearly for a change in policy".

Strong household spending and business investment lifted gross domestic product 0.6 per cent in the December quarter, helping the kiwi climb to a seven-week top of US$0.6938.

"If US rates remain unchanged, so will UAE rates". In effect, it shows a Fed concerned about the growth outlook for any number of reasons - trade tensions, peak profit margins, higher oil prices, presidential election season dynamics, etc. Keep in mind that apparent concern is despite interest rates at low levels and hikes being swabbed from the table for the foreseeable future.

Bank stocks fell broadly along with rates, with the S&P 500 financials sector down more than 2 percent, weighing on the market.

KeyCorp slumped 5.3 per cent, while Bank of America lost 3.4 per cent.

"The average level of reserves after the FOMC has concluded the reduction of its aggregate securities holdings at the end of September will likely still be somewhat above the level of reserves necessary to efficiently and effectively implement monetary policy", the Fed says.

Together, the moves signal no major increases in borrowing rates for consumers and businesses.

Expectations for an interest-rate hike this year have fallen below those for a cut. Big bank stocks such as JPMorgan Chase and Bank of America - which had been rallying nicely into Fed Day - were clobbered.

Ultimately, the direction of the Dollar from here will be determined as much by what happens overseas in Europe and elsewhere as it will by what the Fed does.

Jonathan Rawling, chief financial officer of UAE financial comparison site Yallacompare, said while borrowers might gain, savers who were hoping for greater returns "will perhaps be a little disappointed". A majority of members now anticipate just one more interest rate rise in this cycle, which is penciled in for some time in 2020. "Now that such hikes seem unlikely the perceived urgency around this has gone", he said. If it stays there, the 0.08 percentage point drop would be the largest since early January. Netflix climbed 4.6 per cent, while Noble Energy added 3.6 per cent.

Bond prices continued to climb after the Fed announcement, sending yields lower.

The dollar fell to 110.61 yen from 111.41 Japanese yen on Tuesday. The Dollar index was quoted -0.58% lower at 95.82 following the announcement on Wednesday, while the Euro-to-Dollar rate was up 0.69% at 1.1433.

The shift in the closely-watched forecast released meant nine of the 17 members of the policy-setting Federal Open Market Committee lowered their projection for this year.

Powell explained the about-face, saying that, while fiscal stimulus boosted the economy in 2018, there had been "data arriving since September suggesting that growth is slowing somewhat more than expected".

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