Fed holds rates steady, sees inflation uptick this year

Gold snip 4

The bank kept the interest rate range between 1.25 and 1 percent, an attempt to coax low inflation toward the Fed's 2-percent target before increasing the pace of rate hikes.

National Association of Realtors Chief Economist Lawrence Yun said mortgage rates could rise beyond 4.5 percent in the second half of the year, driven up by incremental increases to the federal funds rate and the Fed's gradual unwinding of its balance sheet.

The US Federal Reserve left its benchmark interest rate unchanged and said the monetary policy stance remains accommodative, which would support job growth and stronger inflation.

According to the post-meeting statement, "Inflation on a 12-month basis is expected to move up this year and to stabilize around the Committee's 2 percent objective over the medium term", and "Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely".

However, in a world where the US Dollar has spent the opening weeks of the new year being wiped across the proverbial floor, market expectations for US inflation and interest rates are more important than they have been for a long time.

US stocks took last night's decision in their stride closing modestly higher, reversing two days of declines, but still posting their best start to a year since 1987, with the S&P 500 closing higher for the 15 month in a row, equalling a run of monthly gains last seen back in 1959.

Healthcare stocks continued to weigh on the three major U.S. indexes following a report on Tuesday that Amazon.com (AMZN.O), Berkshire Hathaway (BRKa.N) and JPMorgan Chase (JPM.N) were joining forces to cut healthcare costs for its U.S. employees.

Her first day at the office is Monday. Powell may face the opposite challenge.

At the same time the changing makeup of the FOMC appears to be leaning in a more hawkish, inflation-averse direction, which raises the chances the committee will raise rates four times rather than three. Core Personal Consumption Expenditures (PCE), the Fed's go-to inflation measure, held steady at 1.5% in 2017. "It will be difficult in his mind to justify additional rate increases".

Yellen, 71, it is a new professional home. There's been no word so far on whether Yellen will pen a memoir of her experience at the helm of the US central bank or sign on with a financial firm.

Rather than looking for a move on rates, market participants were watching the January Fed meeting for clues on how the central bank might proceed for the rest of the year. This backdrop would possibly lead participants to anticipate additional progress in labor markets, a return of inflation to 2 percent and more policy normalization.

The local currency fell to 90.34 Australian cents from 90.62 cents yesterday. And she already knows one of her new coworkers: Ben Bernanke, who preceded her as Fed chairman and joined the think tank in 2014.

This is Janet Yellen's last meeting as Federal Reserve chair. While accountable to Congress, it doesn't rely on appropriations.

The Australian share market was expected to open flat, with ASX futures down by 3 points.


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