Since officials last met in early May, they have faced conflicting signals about the economy on two items that matter most: employment and inflation.
The probability that the Federal Open Market Committee will increase interest rates at today's meeting is 93%, which compares to 99% yesterday. With recent economic reports showing some mixed results - and slowing inflation - analysts will be particularly interested in the Fed's outlook for monetary policy through the end of the year.
Has The Market Priced In A Rate Hike? Even so, numerous barometers the Fed monitors most closely have given it the confidence to keep gradually lifting still-low borrowing rates toward their historic norms.
In that spirit, the Fed also wants to unload its bond holdings gradually, so not to disrupt the markets. US gold futures gained 0.07 percent to $1,269.50 an ounce. That buying pressure holds down Treasury rates. He billed his plan as a way to accelerate economic growth from the sluggish 2.1 percent annual rate of the past eight years. It was the second time the Fed has raised rates this year after the first hike in March. Most economists expect it to be much larger than before the crisis, but the Fed has given no formal guidance. But Fed officials have said they think inflation will soon pick up along with the economy. The FOMC will release a new set of "dot plots" at the conclusion of this week's meeting.
Interest rates are seen rising one more time by the end of this year, according to the median projection of the forecasts released with the Fed's policy statement, in keeping with the previous forecast.
In the statement following the decision, the Fed stated that the near-term risks to the economy appear roughly balanced, but expects inflation to remain below target at 1.6% in the near term and is monitoring developments closely.
Rate hikes are seen as dollar-supportive; the dollar has been making a comeback as of late which does not bode well for gold. Longer-run market expectations have also fallen since March.
On the first of these, the Fed has already said it would not start balance sheet reduction until the process of lifting interest rates is "well under way". When the Fed announced it wanted to wind down its bond purchasing in 2013, raising the prospect of higher bond yields, stocks sank. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments. The divergence in recent months is not this severe, but is something worth watching moving forward.
TECH BOUNCE: U.S. tech stocks bounced back but still are below last week's record-high prices.
Canada's main stock index slumped on Wednesday to its lowest close in six months as energy stocks were hit by a sharp retreat in the price of oil and loyalty program company Aimia fell sharply after suspending its dividend payments.
The Fed chairwoman seemed to dismiss any suggestion that the Fed would "pause" for rate hikes when the winding down of the balance sheet starts.
U.S. treasuries were sharply firmer as the market anticipated lower inflationary pressures for the rest of the year.
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