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United States Federal Reserve Leaves Rates Unchanged

  • US Federal Reserve holds interest rates steady, cites inflation as still too high; US dollar declined while the stock market surged but then retreated.

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    The Federal Reserve maintained interest rates for a sixth straight time at its meeting on May 1. This kept the benchmark interest rate in the target range of 5.25 percent to 5.50 percent. The decision to hold interest rates, which was unanimous, was widely expected but there was nonetheless a strong reaction in the Forex and equity markets after the announcement.

    The markets were expecting a hawkish message from the Federal Reserve as recent inflation releases have been hotter than expected and consumer price inflation (CPI) rose in February and March. Also, the March US nonfarm payrolls soared with a gain of 303,000, which was much higher than expected as the labor market remains robust. These releases have complicated the Fed’s attempt to bring inflation back down to the target of 2%.

    Powell Says Inflation Too High, but No Plans to Hike Interest Rates 

    Fed Chair Jerome Powell focused on inflation in the rate statement and at the follow-up press conference. The rate statement noted that inflation had eased over the past year but “in recent months there has been a lack of further progress toward the Committee's 2 percent inflation objective” and that the Fed did not expect to lower rates “until it has gained greater confidence that inflation is moving sustainably toward 2 percent”. Powell reiterated at a news conference that inflation had stalled and that it would take longer than expected for the Fed to feel confident that inflation was falling closer to the 2% target.

    Powell’s comments weren’t all hawkish, as he said that he expected inflation to resume its downward path and said it was “unlikely” that the next rate move would be a hike.

    US Dollar Falls, Stock Markets Climb Briefly After Fed Meeting 

    Investors gave a thumbs-up to the prospect that the Fed still planned to lower rates and that a rate hike was unlikely. The US Dollar fell against the major currencies while the US stock market rose sharply higher after the announcement.

    The USD/JPY currency pair showed the sharpest movement among the majors, dropping by a massive 2% on Wednesday, but has reversed directions on Thursday and is up 0.60% at the time of writing.

    In the US, the major stock indices posted strong gains on Wednesday but could not hold these gains.

    The S&P 500 Index climbed 1.3% after the rate announcement and hit a high of 5,088 but pared these gains and closed at 5,018, down 17 points (0.34%) on the day.

    The Nasdaq 100 Index surged as much as 1.1%, hitting a high of 17,642 but then reversed directions and closed at 17,318, down 122 points (0.70%) on the day.

    On Thursday, S&P 500 futures are up 34 points (0.67%) at 5080.

    Nasdaq 100 futures are up 145 points (0.83%) at 17,583.

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    Kenny Fisher
    About Kenny Fisher
    Kenny started his career in forex working in the sales and marketing department at a major forex broker and has worked as a market analyst for 12 years. With a legal editing background, Kenny has combined his writing skills and finance expertise to produce top-quality articles. Kenny covers a wide range of topics, including global stock markets, commodities and currencies, with focus on fundamental and macro-economic analysis. Kenny’s articles have been carried by Oanda,, Seeking Alpha and FXStreet. Kenny holds a Bachelor of Law from Ogoode Hall Law School in Toronto, Canada.

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