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- Asian shares were mostly higher on Wednesday on hopes that Beijing could stem the rout in its markets without damage to the economy, though caution was the watchword ahead of a policy decision from the U.S. Federal Reserve. Sentiment has been soothed a little by pledges from Chinese regulators to buy shares to stabilize stocks if needed and hints of more policy easing from the central bank. Yet investors remain understandably wary of a market that, without warning, fell more than 8 percent on Monday. The Fed ends a two-day policy meeting later on Wednesday with markets divided on whether it will take a hawkish or dovish stance, while some suspect it might chose to do neither. No move on rates is expected this week. In recent congressional testimony, Fed Chair Janet Yellen neither ruled out a September hike nor guided the market toward thinking it was a done deal.
- The Federal Reserve is expected on Wednesday to point to a growing U.S. economy and stronger job market as it sets the stage for a possible interest rate hike in September. The U.S. central bank is scheduled to issue its latest policy statement at 2 p.m. EDT following a two-day meeting, spelling out how policymakers feel the economy has progressed since they last met in June. Earlier this year the Fed embraced a meeting-by-meeting approach on the timing of what will be its first rate hike since June 2006, making such a decision solely dependent on incoming economic data. With a slew of employment, inflation and GDP reports to come before its September meeting, the Fed is unlikely to hint too strongly about its plans. Despite a dovish reputation, Fed Chair Janet Yellen has been among those pulling on the door handle in recent public statements, saying she felt a rate hike would be appropriate sometime this year absent a negative shock to the economy. Although another collapse in energy prices and growing economic uncertainty in China is clouding the global economic outlook, the Fed has largely looked beyond recent turmoil overseas. Instead, it has focused on the steady growth in the U.S. job market and on policymakers’ expectations that inflation will eventually rise to the central bank’s medium-term objective of 2 percent. The U.S. unemployment rate is 5.3 percent, near what many officials consider full employment. An economic contraction in the first quarter also has been set aside as an aberration, the result of a harsh winter and statistical “noise” that federal number crunchers are now trying to fix.
- Many commodity currencies remained under pressure from worries about slowdown in the Chinese economy as well, though they bounced back from multi-year lows thanks in part to hopes Chinese shares are stabilizing after their massive fall on Monday. The New Zealand dollar, worst-performing of the major currencies so far this year, edged higher after comments from the Reserve Bank of New Zealand were perceived to contain no new surprises. RBNZ Governor Graeme Wheeler said the economy needed further rate cuts and a lower exchange rate. He added that local forecasts of further large rate cuts “could only be consistent with the economy moving into recession”.