The US Federal Reserve sat on rates and other possible bit policy moves at its meeting in Washington overnight.
The news had been expected, although there had been plenty of economists who had seen the Fed announcing the start of a new round of what’s called quantitative easing.
But while it did nothing, it indicated it would do something, if it saw the need.
The Fed said in its statement that it “will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”(My emphasis).
The Fed’s non-decision knocked the US dollar lower, saw stocks rise on Wall Street, then ease quickly at the end, leaving the Dow just in the green but Nasdaq and the S&P 500 in the red.
Gold hit new highs, $US1,289.40 an ounce in earlier trading and $US1,290.50 at the close..
The US dollar fell and the Aussie dollar bounced to 95.45 USc, the highest for more than two years. It later fell back to around 95.30. Oil weakened.
The 10-year US Treasury bond yield lost 12 basis points to 2.59% and the 2-year yield slid to a record low of 0.4155%.
In its post meeting statement the Fed noted that the economic recovery continues to lose steam.
"The pace of recovery in output and employment has slowed in recent months."
And while it indicated it still saw the economy improving, it cautioned "the pace of economic recovery is likely to be modest in the near-term."
The Fed left its Federal Funds rate at 0% to 0.25%, where it has been sitting since December, 2008.
The Fed’s again promised that this rate would stay at an "exceptionally low levels" for an "extended period."
The Fed also announced it will continue to make new purchases of Treasury bond with the proceeds of its earlier investments.
That policy was announced at its previous meeting last month.
Inflation is still not a concern, in fact the lack of inflation remains the big worry, as the Fed noted in its statement:
"Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.
" With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate."
The meeting was the last before the mid-term elections and came a day after the US recession was declared over by the independent group that assesses business cycles in America.
And in Ireland an auction of 1.5 billion euros of bonds went off successfully with strong demand, thereby easing fears of more pressure on the country and the eurozone.
A bond auction in Spain also went off successfully.
Rates were a bit lower than expected and market rates eased after the sale.
