As You Were: Fed, RBNZ & Norges Bank Keep Rates Unchanged

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Notes From The Statement

At their September rates meeting the Federal Reserve opted to keep rates unchanged, in line with broad market expectations though 3 members voted for a hike, this time, around. The Fed decided to “wait for the time-being” for more progress towards goals.

  • The Fed now sees one interest rate rise in 2016, two in 2017 and three in 2018/19. Three Fed officials see no rate increase in 2016, up from zero in June. Only four Fed officials see more than one rate rise in 2016.
  • Fed sees median Fed funds rate at 1.125% end 2017, 1.875% end 2018 and 2.625% end 2019.
  • The Fed expects a moderate pace of economic growth and the labour market to “strengthen somewhat further”. The Fed now sees near-term risks to the economic outlook as roughly balanced.
  • The central bank noted that they continue to closely monitor global economic and financial developments as well as inflation indicators.
  • Market-based inflation compensation measures remain low whilst growth has picked up from the modest pace in H1 2016 though Fed still expects slightly lower GDP in 2016 but unchanged in 2017 and 2018.
  • Slow productivity growth a big concern, leads to lower living standards. Slow productivity growth influences longer run level of interest rates
  • Whilst the labour market has continued to strengthen Fed expects the Unemployment rate to rise over 2016 though remain unchanged in 2017/18.
  • Median Unemployment Projections are now 4.8% 2016, 4.6% 2017 , 4.5% 2018 and 4.6% 2019.
  • Fed sees lower inflation in 2016 but unchanged in 2017/18. Median Inflation Projections are now 1.3% 2016, 1.9% 2017 and 2% 2018/19. Median Core Inflation Projections 1.7% 2016, 1.8% 2017, 2% 2018/19.

Following the meeting statement, we then heard from Fed chair Janet Yellen in the post-decision press conference.

Notes From The Press Conference

  • Household spending key source of economic growth, current policy should help economy move towards goals.
  • Welcome development that more people are seeking jobs and Unemployment measures are steady.
  • Recent pickup in growth and labour market has strengthened case for rate increase.
  • The decision not to raise does not reflect a lack of confidence in the economy; Fed would like to see further evidence of progress towards goals. Fed generally pleased with how the US economy is doing but the economy has a little more room to run than previously thought.
  • Cautious approach to paring back monetary policy is appropriate
  • Current stance of monetary policy is viewed as accommodative; Fed expects only gradual increases in Fed funds rate.
  • Fed expects labour market to continue strengthening, though Fed doesn’t see economy as overheating now.
  • Most Fed officials judged the case for an immediate increase as “stronger” but judged it sensible to wait. Fed expects to see one rate increase this year if economy stays on course.
  • 180k jobs a month us faster than sustainable in the long run.
  • Fed doesn’t want to significantly overshoot 2% inflation target.
  • Less disagreement among FOMC members than the speech suggests. Officials struggling with “what is the new normal?”
  • FOMC not a body that suffers from “group think”.
  • The decision to wait on rates based on economic, not political factors, partisan politics plays no role in our decisions. We do not discuss politics at our meetings or take politics into account.
  • November is a live meeting, will assess incoming evidence (data)
  • Fed is aware of financial stability risks posed by low rates but describe those risks as moderate.
  • Investment spending has been quite weak for some time, not certain of causes. Not aware of evidence of political uncertainty weakening investment spending.
  • Worthwhile for fiscal policy makers to prepare for future economic shocks. Fiscal policy could help alleviate the burden on monetary policy.
  • Fed agrees there are risks in waiting too long to remove policy accommodation and need to take a forward-looking approach.
  • However, could cause a recession by tightening rates too quickly if economy runs too hot.

In all the meeting was broadly Dovish in terms of forward guidance though the market reaction was focused more on the lowering of the dot plot. With three members having dissented this time around, it seems clear that the Fed will look to move in December so long as data supports the decision.


For now, the US Dollar index remains within a corrective bullish channel within a broader bearish channel from 2016 highs.

 RBNZ On Hold

The Reserve Bank of New Zealand kept rates on hold overnight as expected. However, RBNZ chief Wheeler struck a Dovish tone in the accompanying statement noting that further easing is likely to be required, reiterating that they feel a lower NZD rate is necessary. RBNZ noted that a highs NZD is making it difficult to achieve inflation target with weak global growth and low rates putting upward pressure on the currency.

RBNZ noted that monetary policy is to remain accommodative as volatility in global markets has increased, and a decline in the exchange rate is needed. The outlook for global growth and commodity prices is noted to be uncertain.

Traders have taken this as a firm signal form a rate cut at the bank’s upcoming November meeting with rates markets now suggesting a 70% chance of a cut.

Norges Bank On Hold

Norway’s central bank kept rates on hold, this time, around though noted that the key policy rate forecast implies a slightly higher probability of a decrease than an increase in the year ahead.  2017 non-Oil GDP growth was revised higher to 1.8% vs. 1.6% in June. 2017 Core CPI also revised higher to 2.7% vs. 2.3% in June.

Referring to the housing market the bank noted that house price inflation has been accelerated and been higher than projected. Low-interest rates may contribute to a persistently high rate of increase in house prices and increase the vulnerability of financial institutions.


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