Fed Changes Course, Signals Pause on Rate Hikes

Asian Stocks Slip Before Fed Yuan Extends Gains Markets WrapMore

Asian Stocks Slip Before Fed Yuan Extends Gains Markets WrapMore

And for gold, as it jumped above $1,320 amid the soft FOMC statement. This statement is meant to convey that strength but to ensure that markets realize that the FOMC will not be tightening monetary policy in a vacuum.

The Federal Reserve is keeping its key interest rate unchanged and signaling that it could leave rates alone in coming months given global economic pressures and mild inflation.

This time, it is widely anticipated and nearly 100% guaranteed that the FED will keep interest rates unchanged at 2.50%. First, the assessment of the economic activity was revised downward a bit.

It cited "solid" economic growth, rather than a "strong rate of growth" highlighted in prior statements.

Just last month, the Fed raised the federal funds rate and other short-term borrowing costs by a quarter point to between 2.25 percent and 2.50 percent, its fourth rate increase in 2018.

The US Federal Reserve kept the Fed funds rate on hold (at 2.50%), as widely anticipated, it continue to adapt to a more dovish stance than expected, moving to a neutral stance in regards to interest rate adjustments, highlighting a need to pause against a backdrop of weaker inflation and slowdown in global growth.

That decisions seem to be incomprehensible given "generally strong USA macroeconomic performance", as Powell put it. "Growth has slowed in some major foreign economies, particularly China and Europe".

The wait-and-see approach is not only about the risk-management.

"The case for raising rates has weakened somewhat", Powell told reporters at a press conference following the committee's January rate-setting meeting.

The next few months will prove crucial.

Proponents of this one say the Fed under Powell is just operating the way it did under previous chairs dating back to Alan Greenspan.

In yesterday's statement, the Fed said it was "prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments".

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His trips left a positive impression with several political professionals in the early primary and caucus states. Cory Booker speaks during the first day of the Democratic National Convention in Philadelphia, July 25, 2016.

Conspicuously absent from the Fed's statement was language about future rate hikes.

During quantitative easing, the Fed accumulated an additional $3.5 trillion of securities going back to August 2007 when the financial crisis began, bringing it to a peak of $4.3 trillion at the end of 2014.

To sum up, the FOMC was dovish both on the interest rate policy and the balance sheet policy.

"We're not favoring the USA market, but we're happy to own Treasuries", said Schroders Plc portfolio manager Angus Sippe.

This release produced a broad fall in the value of the U.S. Dollar and a rise in the U.S. stock market.

Chart 1: USD/JPY exchange rate from January 29 to January 31, 2019.

Markets have priced in all that aggressively, and now the Fed has too.

Are gold stocks a good idea for 2019?

And all this happened even though U.S. labor market indicators have continued to go from strength to strength.

The Fed held rates steady, discarded its promise of "further gradual increases" in rates and said it would be "patient" before making any further moves. "Overall, this was a positive message from the Fed as the ability to be nimble and make changes to monetary policy during periods of high uncertainty are extremely important".

However, Mr Powell cautioned that another shutdown or protracted trade negotiations with China could hurt the economy by sapping business confidence.

If you enjoyed the above analysis, we invite you to check out our other services. Later in the afternoon we have the ISM Manufacturing PMI report.

Little occurred this week to alter our medium-term bearish CAD views. Its benchmark short-term rate will remain in a range of 2.25 percent to 2.5 percent after having been raised four times past year. Mr. Radomski is not a Registered Securities Advisor. That has sent stock markets higher. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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