Winter Park, Florida 21/09/2016 - The Federal Open Market Committee (FOMC) kept interest rates unchanged on Wednesday but the policy board did lay the groundwork for an increase in the coming months.
“The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives,” the FOMC policy statement said.
In recent weeks, several Fed members have outspokenly championed a near-term rate hike despite uneven US data and questions over the health of the global economy. But with the presidential election only weeks away, most assumed that the monetary policy board would hold off on taking action.
Nevertheless, three FOMC members - Esther George, Loretta Mester and Eric Rosengren - dissented from the statement, an unusually large number, which indicates that policy board is split.
“Buckle your seat belts. This is a recipe for volatility. [Chairwoman Janet Yellen] does not has a consensus on the board so there’s going to be committee members speaking and moving markets over the next month. November is even a remote possibly but likely it will December when they raise rates,” CNBC's economics reporter Steve Liesman said.
Gold benefited from the Fed’s lack of action - the Comex December contract was last at $1,335.30 per ounce, up about $4 since the statement was released and $18.00 for the session. In the base metals, the most active Comex copper contract was at $2.1475 per pound, down 1.1 cents.
As for the wider-markets, the dollar was near unchanged at 1.1163 against the euro, while the Dow Jones industrial average and S&P 500 were up 0.22 percent and 0.33 percent respectively.
“The economy has every target that they set and we have an inappropriate level of interest rates, which is distorting asset prices, blowing bubbles and will eventually end up with inflation. They are causing short term harm for no long term good,” said David Green, JP Morgan analyst, who suggested that the FOMC missed an opportunity to increase rates.
In other central bank news, the Bank of Japan shifted its strategy. Although it kept interest rates unchanged, the Japanese central bank said it would switch from bond-buying to targeting long-term interest rates.
There was a lack of macroeconomic data today as well - the only release of significance was China's August leading index, which rose 0.9 percent from the previous month.