Federal Reserve nods to economic headwinds as it keeps rates steady

Federal Reserve nods to economic headwinds as it keeps rates steady

Powell late a year ago repeatedly shook up markets with comments considered to be overly optimistic and hinting at more rate hikes to come. Benchmark U.S. Treasury yields, which tend to set the bar for global borrowing costs, had dived significantly and Europe's big move saw Italian 2-year yields hit their lowest since May.

It made the statements after the Fed's January meeting, where they held interest rates unchanged, as expected.

Like Dalal Street, the dovish tone may also be taken kindly by US President Donald Trump, who was at loggerheads with Fed Chair Jerome Powell, demanding that the central bank should stop raising rates.

Following this announcement, the Dow Jones Industrial Average rose more than 400 points. The S&P 500 index was up 41.05 points at 2,681.05, while the Nasdaq composite was up 154.79 points at 7,183.08. And by indicating flexibility on the runoff in its balance sheet, the Fed implicitly acknowledged the impact the reduction of its government securities' holdings was having on the private credit and equity markets, and by extension, on the economy.

"In light of global economic and financial developments and muted inflation pressures, the committee will be patient as it determines" the timing and need for any further increases, the policy-setting Federal Open Market Committee said.

Of course, the Fed didn't specifically say that its campaign to bring interest rates back to more normal levels was over.

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"If we do get some sort of news of a de-escalation in the trade debacle between the USA and China that would remove a key overhang, a key risk from the equity outlook and would help to place a floor under equity markets broadly". On Wednesday, the statement said "market-based measures of inflation compensation have moved lower in recent months".

The central bank announced its decision to stand pat Wednesday afternoon, in line with its outlook in December that suggested a moderate plan to raise rates no more than twice this year. He didn't comment on the Fed's actions on Wednesday, but he did tweet "Dow just broke 25,000". But it remains nearly 7 percent below its record high of 26,828, reached on October 3.

U.S. West Texas Intermediate (WTI) crude futures were at $54.47 per barrel, up 24 cents, or 0.4 percent, from their last settlement.

"The market can expect the statement to acknowledge the new theme of patience, which should mean that the gradual rate hiking forward guidance of previous statements is tempered down", Mohammed Kazmi, portfolio manager at UBP wrote in a note.

Facebook jumped 10.8 per cent in early trading Thursday after reporting solid user metrics, but chocolate maker Hershey slid 3.9 per cent after releasing a disappointing revenue forecast.