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U.S. Fed does not Hike Interests but Sees 'Improved' Sentiment


02/02/2017


U.S. Fed does not Hike Interests but Sees 'Improved' Sentiment
Though the Federal Reserve did give a nod to growing optimism among the business community and consumers, it held the line on interest rates at its meeting this week.
 
Its benchmark overnight lending rate target was kept at a range of 0.5 percent to 0.75 percent by the Federal Open Market Committee — the central bank's policy making arm as the market had widely expected. Marking just the second hike in more than 10 years, the Fed raised the target a quarter point in December.
 
There was very little to indicate when the Fed might resume the rate normalization process in the post-meeting communiqué.
 
However, officials did take note of a change in mood.
 
"Measures of consumer and business sentiment have improved of late," the committee said Wednesday. The language was new, and in the arcane process of discerning where the thinking resides among central bankers, it was significant.
 
Since Donald Trump scored an upset in the November presidential election, Wall Street indeed has shown more optimism in the days. There have been strong indications for measures of business, investor and consumer sentiment and stocks have rallied.
 
"There's been this dichotomy that's occurred since the election between measures of sentiment and real activity. There's been this real animal spirits story," said Mark Doms, senior economist and managing director at Nomura. "One of the things the Fed is going to be looking for, as well as the market, is whether these animal spirits are going to materialize in a meaningful way."
 
To charge up a slow-growing U.S. economy, reduced regulations, higher government spending on infrastructure, and a program of lower taxes are the measures that Trump has promised to deliver during his Presidency.
 
In order to to complement its historically aggressive monetary policy, the Fed has encouraged more fiscal stimulus for years now.
 
The FOMC removed a reference to the effect that declining energy prices have had on inflation in addition to its observations on sentiment. Oil prices are not having the same depressing impact on inflation and have moved higher, albeit in an occasionally volatile manner.
 
"They are still in a wait and see mode," said Joseph LaVorgna, chief U.S. economist for Deutsche Bank. "This is a Fed that's still going to be very cautious and gradual in raising rates and will be reactive. They are not going to be moving in an anticipatory sense."
 
The closely watched risks outlook to its economic projections was also not altered by the Fed. There is an equal chance of the economy exceeding or falling short of FOMC members' estimate, said the Fed statement which again gauged near-term risks to "appear roughly balanced" in doing so.
 
 Indication about when it may start unwinding its $4.5 trillion balance sheet, a topic of increasing interest on Wall Street lately, was also not given by the committee.
 
Growth is expanding at a "moderate" pace while the labor market "has continued to strengthen," the committee said looking at the economy.
 
"Job gains remained solid and the unemployment rate stayed near its recent low," the statement said, reflecting just a minor tweak from language at the December meeting.
 
(Source:www.cnbc.com)
 


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