The Federal Reserve admitted this week that there was no rush to raise interest rates. On Wednesday, the Fed admitted that it although interest rates will remain unchanged, the door is still open to raising them by June or July. It has sparked significant activity from investors, many of whom expected an interest rate rise.
The meeting mirrored the one that happened in March. The US central bank’s rate-setting organisation said that although the labour market had improved, economic growth had slowed down, thus working against the argument for raising interest rates.
It also said that global economic issues had counteracted its reasoning for raising interest rates. There was no mention regarding what these global economic issues were or when they were expected to come into effect. Unlike last month’s meeting, the Fed were sparse on its details for deciding against raising interest rates.
US equities increased in light of the announcement. On the other hand, US dollar prices against other currencies weakened. The decrease in value for the dollar was not as significant as expected, however, as investors did not rush to move into other currencies.
In many ways, this announcement has offset many of the other global economic issues, including the rise of the Eurozone economy and the increasing odds of a Brexit for the UK.
The biggest change in the market was in gold prices. The spot price of gold reached a seven-week high, and silver prices also rose, underpinning a major success for the precious metals market.
Most traders in the financial markets are assuming that a rates rise will first come in September. There are also strong chances on the rates rise coming as late as December. This comes as a result of the Fed admitting that it is likely to raise interest rates twice in the coming year.
Traders have a 23% probability of an interest rate rise in June. But most investment portfolios agree that the rate is likely to come later than that, after the summer, and after the results of the British referendum on staying in the EU have been realised.
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