US Federal Reserve holds interest rates steady

US Federal Reserve holds interest rates steady”

This is largely due to expectations that the central bank will choose its September meeting to announce the start of its plans to begin reducing the $4.4 trillion balance sheet it has accrued over the decade since the financial crisis.

At the two-day Federal Open Market Committee meeting, the USA central bank is widely expected to announce plans to trim its balance sheet but hold off raising interest rates for now. At its previous meeting in July, it also declined to raise its benchmark interest rate.

ASIA'S DAY: Japan's benchmark Nikkei 225 added almost 2.0 percent to finish at 20,299.38, coming off a national holiday on Monday.

The decision comes as the United States central bank sees economic activity "rising moderately," with a labor market that "continued to strengthen" creating "solid" job gains since the Fed's last meeting in July. "We think the economy is performing well".

"In all likelihood, gold will remain under some selling pressure into tomorrow's FOMC and will be particularly sensitive to moves on the US yield curve", said Jeffrey Halley, a senior market analyst at OANDA.

In another unsurprising move on Thursday, the Bank of Japan kept their monetary policy unchanged, keeping interest rates on hold and their asset purchase program unchanged. They would increase in three-month intervals until they peaked at $50 billion in about a year from now, she added. Because the balance has never gotten that high, there's not an instruction manual on how to lower it again without disrupting the economy. Over the years, it has worked well enough to help cut the unemployment rate to its current low of 4.4 percent.

No Fed officials dissented on the decision. Gross domestic product is now expected to grow at a rate of 2.4 percent this year, 2.1 percent next year and 2.0 percent in 2019.

The Fed had forecast three rate hikes in 2017, of which two have already been completed.

The Fed made a decision to keep American interest rates on hold at 1-1.25 per cent, as widely predicted.

What did the Fed say?

Ongoing lackluster U.S. economic data, outside of the labor market, coupled with persistently soft inflation readings and depressed inflation expectations, gave the Fed few options heading into today's meeting. Indeed, the Fed did signal the implementation of their balance sheet normalization strategy, which was outlined at the June meeting in the "Policy Normalization Principles and Plans" augmentation. Stocks have also set a string of record highs.

The policy statement and accompanying projections showed the Fed still in the middle of a balancing act between an economic recovery that has kept USA unemployment low and is gaining steam globally and a recent worrying drop in US inflation. "Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters".

U.S. President Donald Trump escalated his standoff with North Korea over its nuclear challenge on Tuesday, threatening to "totally destroy" the country and mocking its leader, Kim Jong Un, as a "rocket man".

"When you combine the excellent communication (from the Fed) and the small nature of the initial unwind, right now the market knows what's coming, I expect there to be no real response". Part of the reason for this pattern is continuity.

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