After holding interest rates at record lows for more than six years, the US Federal Reserve still is not ready to start raising them.
The Fed on Wednesday signaled that it needs the job market to improve further and inflation to rise above low levels before it begins nudging borrowing rates up. Even then, it suggested it will do so only very gradually.
The statement the Fed issued after its latest policy meeting seemed to catch investors by surprise in suggesting that a rate increase might be further off than many had assumed. Stock prices jumped and bond yields fell on Wednesday.
Most Asian equity markets outside Japan rallied yesterday after Fed comments cooled expectations of an early rate hike, while the euro and yen retreated against the US dollar after racking up big gains in New York.
In its statement and later in Fed Chair Janet Yellen’s news conference, the Fed expressed concerns despite the economy’s steady growth. Yellen pointed to lower energy prices and a surging US dollar, which is helping keep inflation excessively low and posing a threat to US corporate profits and possibly to the economy. A Fed rate increase would likely send the US dollar even higher.
At the same time, the Fed at least opened the door to a rate increase later this year by no longer saying it will be “patient” in starting to raise its benchmark rate. Yellen said that while the Fed had removed “patient” to describe its approach to raising rates, it still had not decided when to begin raising them.
“Just because we removed the word ‘patient’ from the statement, does not mean we are going to be impatient,” Yellen said.
The Fed has kept its key short-term rate near zero since late 2008 to try to bolster the economy after a devastating financial crisis and recession. In its statement, the Fed said that the economy, which it previously said was growing solidly, has “moderated somewhat.”
Employers have added more than 200,000 jobs each month for a year. Unemployment is at a seven-year low of 5.5 percent. Hiring is far outpacing the job gains in overseas economies.
However, Yellen suggested that the broad pay increases that are normally associated with steady job growth might not occur anytime soon. She said, though, that the Fed would not necessarily wait for wages to rise at a faster pace before it raises its key rate from its near-zero level.
“We may not see wage growth pick up,” she told reporters.
The Fed’s statement on Wednesday was approved on a 10-0 vote.
In its characterization of the economy, the statement said export growth has weakened, a trend that partly reflects a stronger US dollar. A rising US dollar makes US goods costlier overseas.
“I certainly expect net exports to serve as a notable drag this year,” Yellen said.
The statement said that before raising rates, Fed officials want to be “reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
The Fed also downgraded its quarterly economic forecasts. It cut its estimate of growth this year to a range of 2.3 percent to 2.7 percent, from an estimate of 2.6 percent to 3 percent in its previous forecast in December last year. It was an acknowledgement that some key indicators have been weaker than expected in recent months.
The Fed also forecast that the unemployment rate can now fall further without spurring inflation, a sign that it might move slowly in raising rates.
US officials reduced their estimate of the unemployment rate that they think is consistent with a healthy economy to a range of 5 percent to 5.2 percent. That is down from a previous range of 5.2 percent to 5.5 percent. Unemployment now stands at 5.5 percent, the top of the previous range.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
Clambering hand-over-hand, sweat dripping into his eyes, a durian laborer expertly slices a cumbersome fruit from a tree before tossing it down to land with a soft thump in his colleague’s waiting arms about 15m below. Among Thailand’s most famous and lucrative exports, the pungent “king of fruits” is as distinctive in its smell as its spiky green-brown carapace, and has been farmed in the kingdom for hundreds of years. However, a vicious heat wave engulfing Southeast Asia has resulted in smaller yields and spiraling costs, with growers and sellers increasingly panicked as global warming damages the industry. “This year is a crisis,”
HIGH-TECH: As leading-edge process technologies become more complicated, only a handful of players are able to provide design services, the company’s CEO said Artificial intelligence (AI) chip designer Alchip Technologies Ltd (世芯) yesterday said that revenue would grow significantly again in 2026 after adding a major AI chip customer, reversing moderation amid a product transition next year. The Taipei-based application-specific IC (ASIC) designer reiterated its strong revenue growth forecast for this year and 2026 after its stock plummeted about 23 percent to NT$3,145 from a peak of NT$4,085 on March 6 amid growing competition. Alchip said it has built strong partnerships with cloud service providers (CSP), denying that it had lost orders to smaller competitors such as Faraday Technology Corp (智原). Faraday said it has secured