US Fed ‘lay groundwork’ for December hike

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The US Federal Reserve has voted to keep rates on hold at its September meeting this week, while chair Janet Yellen has dismissed statements by presidential nominee Donald Trump that the central bank is politically motivated.

Three members of the FOMC dissented from the decision to keep rates on hold, including Eric Rosengren, a traditionally dovish member of the committee who sent markets tumbling when he said earlier this month that there was a ‘reasonable case’ for gradual rate hikes.

The S&P closed 1.1 per cent up, while the Nasdaq finished on a record high up 1 percent to 5,295. The dollar fell breaking $1.30 against the pound having dropped to $1.29 earlier in the week.

Yellen says she “emphatically” denies partisan politics come into the Fed’s policy decision making in a press conference following Wednesday’s announcement.

Trump has previously accused the central bank of holding rates to help the Democrat administration and his political rival Hillary Clinton. He has also discussed removing Yellen as chair.

But Yellen told reporters: “We do not discuss politics at our meetings.”

State Street head of multi-asset for North America Lee Ferridge says the FOMC “lay the groundwork for a move before year-end” with the majority of Fed members stating they expect a rate hike before year-end and Yellen arguing the conditions for a tightening in policy were close to being met.

Fidelity International global economist Anna Stupnytska says softer data over the past few weeks meant the hold on rates was widely expected.

“The drop in manufacturing and non-manufacturing ISM surveys in August is perhaps the most concerning, pointing to a potential slowdown in US growth momentum in the coming months.

“Moreover, a number of consumption-related data points, including retail sales, have also been weak as of late, posing questions on the ability of consumers to continue driving growth going forward.”

Stupnytska adds that due to the uncertain nature of the US election this year it was “wise” for the Fed to take a “wait and see” decision.

barring significant deterioration” in the data or big external shocks she expects a rate hike in December.

“A decision whether to hike rates or not this year has now become a question of the Fed’s credibility. Investors have been frustrated with the Fed’s confusing communication as of late”