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Although the Federal Open Market Committee left interest rates unchanged they have left the door open to hikes later in the year, despite downgrading their economic projections.
In the statement, the central bank was fairly more optimistic on the U.S. economy, downplaying the impact global market volatility has had on U.S. growth.
“[E]conomic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months,” the statement said.
The central bank highlighted concerns about weak inflation but also reiterated that it sees price pressures eventually rising back to its 2.0% target.
“In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal,” the statement continued. “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”
“The Bank had sounded somewhat grimmer in its assessment of recent developments, explicitly pointing at a weakening of inflation expectations, external demand and exports. In a testimony before Parliament yesterday morning, Governor Kuroda repeated that the BoJ “will continue easing until stable 2% inflation has been achieved”.
Whilst Kuroda also argued that “theoretically there is room to cut rates to minus 0.5%” (in which he made an explicit reference to the situation in the Eurozone), this already sounds less aggressive than the references to Sweden and Switzerland made previously.
Moreover, the decision to exempt money reserve funds entrusted to banks from the negative rate as well, lend further support to the view that the Bank has been taken aback by the recent wave of criticism and is now even more concerned about the side-effects of its negative rates policy.”
However, Yen has strengthened after the Kuroda’s speech. Yen has gained more than 1.6 percent from 113.69 yens per U.S. dollar before the Fed statement to 111.83 in this afternoon.
U.S. crude CLc1 was up 77 cents at $39.23 a barrel at 0743 GMT, having earlier risen as high as $39.38. The gains were in addition to a 5.8 percent jump on Wednesday that erased losses from the previous two trading days.
Brent crude LCOc1 rose 52 cents to $40.85, after finishing up 4.1 percent the previous session.
Oil futures extended strong gains on Thursday, continuing to gather support after the world's biggest suppliers firmed up plans to meet to discuss an output freeze.
Oil producers, including Gulf OPEC members, support holding talks next month on a deal to keep production at current levels even if Iran declines to participate, OPEC sources said on Wednesday. A meeting would increase the likelihood of the first global supply deal in 15 years.
Qatari oil minister Mohammed Bin Saleh Al-Sada said producers from within and outside the Organization of the Petroleum Exporting Countries (OPEC) will meet in Doha on April 17 to discuss plans for a freeze in output.
The initiative was supported by around 15 OPEC and non-OPEC producers, accounting for about 73 percent of global oil production, the minister said.
Credits rating agency Moody's has downgraded its outlook for Saudi Arabia's banking sector to negative from stable. It said the change reflected the effect that persistently low oil prices and reduced public spending will have on Saudi banks.
The kingdom's credit rating was cut two notches to A- by Standard & Poor's in February, with the rating agency warning that low oil prices would have "a marked and lasting impact" on the country's economy.
Reference: The Federal Reserve, FXStreet, KITCO, CNBC, Reuters, International Business Times
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