The Fed: No Rate Hike Today

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The Fed: No Rate Hike Today

FEDERAL RESERVE: The Federal Reserve's meeting Wednesday ended with officials saying it may begin paring the massive $4.5 trillion balance sheet it built up following the financial crisis "relatively soon", which some analysts took to mean September.

The Federal Reserve's policy-making body (the Federal Open Market Committee or FOMC) concluded its meeting yesterday by leaving interest rates unchanged.

United States sharemarkets rose to new to new highs as gold and oil also ended the day higher. Markets may be looking for comments on inflation. Investors will have news that iron ore prices recovered the $US70 a tonne level in northern China, which should boost the big miners.

The Fed's cautious, yet generally positive, economic statement follows a slew of mixed data, including disappointing first quarter GDP and soft inflation numbers.

The S&P 500 closed a fraction of a point higher at 2,477.83.

The Dow Jones Industrial Average (NYSEARCA:DIA) rose 0.5% to 21,711.01, a new record. The Nasdaq Composite rose 10.57 points, or 0.2%, to 6,422.75.

The dollar bobbed above a 13-month low against a basket of major currencies on Wednesday, as investors awaited the U.S. Federal Reserve´s policy statement for clues on the course of its next monetary tightening.

While there is no way of knowing what they will do, the "latest chatter suggests the (Fed policymakers) may tip their hat to September as the starting date for reducing the balance sheet", said Stephen Innes, head of Asia-Pacific trading at Oanda. The balance sheet is about $4.5 trillion.

The Fed was positive on growth and employment, however, and said it expected inflation - now at 1.4% as measured by personal consumption expenditure - to return to 2% in the medium term.

"Somewhat" was missing from today's statement: "On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2 per cent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance". This measure for June will be updated tomorrow.

"We think the Fed has laid out its policy plans quite clearly and it is unlikely to deviate from them unless there is a very dramatic change to inflation and employment trends", said Rick Rieder, BlackRock's chief investment officer of global fixed income. Sara Johnson of IHS Markit said the next rate hike likely would be in December. That's what happened in 2013 during the so-called "taper tantrum". "So far, that seems to be the case". Reducing holdings of MBS are expected to increase mortgage interest rates slightly, but the Fed's announced plan is meant to minimize these effects.

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