As expected chair, Janet Yellen kept the Federal Reserve on course for a further interest rate rise in March in her last meeting.
The Fed decision was unanimous and Wall Street rose with the Dow up 150 points, then eased, falling into the red in the last hour of trading as yields on the key 10-year Treasury bond hit a new four year high of 2.753% shortly after the statement’s release.
Yields later retraced to just over 2.72% and the Dow, Nasdaq and the S&P 500 rebounded. The Dow rose 73 points or 0.28%, the S&P 500 was up 1.48% or 0.05% and the Nasdaq rose 9 points or 0.12%.
For the month the S&P 500 was up around 5.6%, the Dow 5.8% and the Nasdaq 7.4%, while the ASX 200 lost half a per cent.
The Fed’s Open Market Committee held its target range for the federal funds rate unchanged at 1.25% to 1.5%, as widely expected, while giving an upbeat assessment of the economy’s recent performance.
The central bank claimed America’s inflation outlook has strengthened (but not according to the Fed’s preferred core inflation measure which has been under the 2% target for more than five years, including December) and America’s jobs market continued to improve – as January’s labour market report on Friday night will tell us.
“Inflation on a 12-month basis is expected to move up this year and to stabilize around the FOMC’s 2% objective over the medium term,” the statement said.
That was a change from the December statement which had said only that inflation was expected to remain below 2% in the near term and move higher over an unspecified time frame.
“Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low,” the Fed said in a statement, while retaining its view that the risks to the outlook remained “roughly balanced”.
Markets took that as confirming that a rate rise will come at the March meeting, meaning incoming chair, Jerome Powell will start his five year term with a rate rise.
The S&P 500 rallied 5.6% in January, the best run since a 6.6% rally in March 2016.
The Stoxx Europe 600 index was up 1.3% gain, but the UK’s FTSE 100 index had a 1.8% monthly loss.
The ASX 200 index rose 14 points, or 0.3 per cent, to 6037/ on Wednesday to be down half a per cent this month.
The Australian dollar has risen 3.4% in January. It closed the month at 80.73 US cents, and started February around 80.50 US cents in early Asian dealings this morning.
