Tuesday, 22 May, 2018

US Federal Reserve leaves key interest rate unchanged, notes rising inflation

The Fed’s policymaking body will reveal its decision tomorrow The Fed’s policymaking body will reveal its decision tomorrowBRENDAN SMIALOWSKI AFP GETTY IMAGES
| 04 May, 2018, 14:20

The Federal Reserve kept its benchmark interest rate unchanged Wednesday but noted that inflation is nearing the Fed's 2 percent target rate after years of remaining undesirably low.

In its statement, the Fed expressed confidence that a recent rise in inflation to near the U.S. central bank's target would be sustained, leaving it on track to raise borrowing costs in June.

A USA dollar note is seen in this June 22, 2017 illustration photo.

Gold rose, then fell into the red in after hours trading and oil edged higher and the Aussie dollar traded at just over 75 United States cents. "Inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term." the Fed's statement said.

The federal open market committee, the Fed's policymaking body, voted unanimously to leave the federal funds rate at 1.5 per cent to 1.75 per cent. USA growth remains robust, but the euro area economy recorded its slowest expansion in 18 months during the first quarter.

Officials also dropped a sentence Wednesday they had added to the statement in March to call attention to a stronger economic outlook. Experts believe they may be two or three additional hikes in 2018.

Markets have already priced in two more rate hikes for the year - one in June and the other one in September.

Powell in the past has signaled support for the gradual pace of rate hikes that Yellen oversaw.

The Fed's view is that economic activity has been rising at a moderate rate and that it sees economic activity expanding at a moderate pace in the medium term.


These positive remarks about inflation and interest rates are good for precious metals silver and gold, as they are sensitive to rising USA interest rates. However, the key question is about the number of rate hikes.

Traders in futures markets Wednesday morning, before the Fed announcement, placed a almost 49% chance of three more rate increases this year and have fully priced in one of those increases at the June meeting, according to CME Group. The Fed is gradually tightening credit to control inflation against the backdrop of a tight job market, a resilient economy and a pickup in consumer prices.

In their policy statement released Wednesday, Fed officials indicated they don't expect inflation to rise too high.

At around 28 million ounces, holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, are down more than 10 percent since the middle of 2016.

Foley said buyers of euros remained at risk of weaker euro zone economic data. In the near term, the recent weak economic data readings in Europe could keep the pressure on the Euro and the GBP - with expectations of tighter monetary policy moderating.

He said the USA dollar was also helped by figures showing economic growth in the euro-area slowed in the first quarter.

USA investors fretted about the acknowledgement of rising inflation.

U.S. stocks briefly moved higher after the Fed's announcement but gave up gains amid concerns about worsening trade relations between the United States and China.

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