Fed muddies the waters
At this stage world equity markets appear to have been relatively unresponsive to the surprisingly dovish Fed statements supporting its decision to leave interest rates on hold. The initial spike in US markets was reversed by the close of trade. This appears likely to translate into a subdued opening on the local market this morning.
While US stock market reaction to the Fed’s decision to leave rates on hold was limited, there have been more significant moves in bond markets, the US Dollar and gold. This may see support for gold stocks in today’s trading.
The Fed’s statements indicate that it’s putting significant weight on the fact that global economies and financial developments are currently exerting downward pressure on inflation. At the same time the stronger $US has already exerted some tightening influence on the US economy. This leaves open the question of whether there is likely to be enough improvement in global economies to improve the inflation outlook by the end of this year. There now seems a greater probability that the first US rate hike will not occur until next year.
Frequently Asked Questions about this Article…
The Fed decided to leave interest rates on hold due to global economic conditions and financial developments that are currently putting downward pressure on inflation. Additionally, the stronger US Dollar has already exerted some tightening influence on the US economy.
Initially, there was a spike in US markets following the Fed's decision to leave rates on hold, but this was reversed by the close of trade. This suggests that the US stock market reaction was relatively limited.
The Fed's decision led to more significant moves in bond markets and the US Dollar, indicating a stronger reaction in these areas compared to the stock market.
The Fed's decision and the subsequent market reactions may provide support for gold stocks in today's trading, as gold often benefits from a weaker US Dollar and lower interest rates.
Given the current economic conditions and the Fed's statements, there seems to be a greater probability that the first US rate hike will not occur until next year.
The Fed is concerned because these factors are exerting downward pressure on inflation, which is a key consideration in their decision-making process regarding interest rates.
The stronger US Dollar has already exerted some tightening influence on the US economy, which is one of the reasons the Fed decided to leave interest rates on hold.
The relatively unresponsive reaction of world equity markets to the Fed's decision suggests that there may be a subdued opening on the local market this morning.
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