Fed says slowdown in USA growth is temporary

Paterniano Del Favero
Mag 9, 2017

The dollar traded below a six-week high against the yen on Wednesday, as the market awaited the Federal Reserve's policy statement for hints on the US interest rate outlook, while the kiwi rose on the back of higher dairy prices, Reuters reported.

The advance release of first-quarter gross domestic product showed the economy grew by 0.7%, its slowest pace in three years. While that was the smallest gain since October, it roughly matched expectations of economists surveyed by Reuters, who had forecast a gain of 175,000 jobs.

Before the Fed statement, the major indexes were all in the red, with the Nasdaq leading the way lower on the stock market today after a mixed earnings report from Apple (AAPL).

The central bank also made adjustments to its outlook for adjustments to the $4.5 trillion in bonds on its balance sheet, saying it will maintain existing policy of reinvesting principal payments from its holdings of agency debt and mortgage-backed securities, and rolling over maturing Treasury securities at aution "until normalization of the level of the federal funds rate is well underway". They may start unwinding by the end of 2017, though that hinges on economic conditions.

That's the level of inflation they view as best for the USA economy.

Inflation measured on a 12-month basis recently has been running close to the Committee's 2 percent longer-run objective.

"The labor market continued to strengthen even as growth in economic activity slowed and "The fundamentals underpinning the continued growth of consumption remained solid", the Fed's statement added".

The Federal Reserve Open Market Committee (FOMC) unanimously voted to hold the target range for the federal funds rate steady at 0.75 to 1 percent at their May meeting. Fed Chair Janet Yellen will speak in at 1:30 p.m. ET and top brass San Francisco Fed President John Williams, St. Louis Fed President James Bullard and Fed Vice Chair Stanley Fisher are all due to speak Friday as well. But she and at least five other Fed officials are scheduled to speak tomorrow, giving policy makers a chance to explain their decision more fully. Economists polled by Reuters expect US employers to have added 185,000 jobs in April, up from 98,000 in March.

Raise of dollar to a two week high & fall of Gold to a six week low, raises concern of increase in interest rate by U.S Federal Reserve by June. While the Fed didn't foreshadow a June hike in its policy statement released Wednesday, it did express confidence in the underlying strength of the economy and saw some disappointing recent economic results as only "transitory".

However, Fed leaders are intensely focused on communication and prefer to raise rates during meetings that include a press conference afterward so they can explain their reasoning.

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