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- Asian shares rose modestly on Friday on relief the Federal Reserve held off on raising interest rates but gains were capped by renewed concerns about the health of the global economy, in particular China. The dollar was on the defensive, having fallen more than 1 percent after the Fed’s decision, while U.S. bond yields plunged, erasing their sharp rises in the past couple of days.
- U.S. Federal Reserve kept interest rates unchanged on Thursday in a bow to worries about the global economy, financial market volatility and sluggish inflation at home, but left open the possibility of a modest policy tightening later this year. In what amounted to a tactical retreat, Fed Chair Janet Yellen said developments in a tightly linked global economy had in effect forced the U.S. central bank’s hand. She added that a recent fall in U.S. stock prices and a rise in the value of the dollar already were tightening financial market conditions, which could slow U.S. economic growth regardless of what the Fed does. Fresh economic projections showed 13 of 17 Fed policymakers foresee raising rates at least once in 2015, down from 15 at the last meeting in June. Traders in futures markets cut bets that the central bank would lift rates by December to around a 47 percent probability, from 64 percent before the release of the policy statement.
- Fed projections of slower GDP growth, low unemployment and continuing low inflation suggest that concerns of a so-called secular stagnation may be taking root among policymakers. One policymaker even suggested a negative federal funds rate. The median projection of the 17 policymakers showed the Fed expects the economy to grow 2.1 percent this year, slightly faster than previously thought. However, its forecasts for GDP growth in 2016 and 2017 were downgraded. Fed also forecast inflation would creep only slowly toward its 2 percent target even as unemployment dips lower than previously expected. It sees the unemployment rate hitting 4.8 percent next year and remaining at that level for as long as three years. The Fed’s projected interest rate path shifted downward, with the long-run federal funds rate now seen at 3.5 percent, compared to 3.75 percent at the last policy meeting.
- Oil markets were weak on Friday as fresh signs OPEC will continue to value market share over prices outweighed expectations of a lift when the United States kept interest rates at historic lows. Kuwait, a key producer of the Organization of the Petroleum Exporting Countries (OPEC), said on Thursday the oil market would balance itself but that this would take time, indicating support for the group’s policy of defending market share despite falling prices. Other sources at OPEC backed this view saying they expected oil prices to rise by no more than $5 a barrel a year to reach $80 by 2020, with a slowing in rival non-OPEC production growth not enough to absorb the current oil glut.