FED RESERVE – HIKE LOOKS CERTAIN NOW IN SEPTEMBER!

By Ruma Dubey

Just like the RBI in during the day, the US Federal Reserve did what was widely expected – kept the rates unchanged. It was a foregone conclusion that it would be a status quo and that is what it was!

The stance, which today has become important than the actual decision was largely accommodative and that it what will go down well with the markets. Trump, a few days ago had lashed out at the Fed for hiking rates and this meet, not because of Trump but more because of economic indicators, the rates were left where they were. In June, the Fed had projected 3-4 rate hikes in 2018 and there are four more months to go. The next meet is 26^th Sept and if Fed wants to keep its trajectory, it would mean pretty a rate hike in every Fed meet of 2018 now. So this FOMC meet of tonight was merely a pause; the other policies would be more newsmakers.

Highlights of the FOMC statement:

Committee decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent.

The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

Labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly.

On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term.

Risks to the economic outlook appear roughly balanced.

For the Indian markets, two of the most impactful decisions are over and done with. It will be back to business tomorrow and the lackluster run of past two sessions could once again be replaced with some robust run. All action would be stock specific, based mainly on earnings. With mainly midcap companies ruling the rooster on the results calendar, that is where all the movement would be. There is the Bank of England interest decision also scheduled today but it would have no real impact on our markets.

So after central banks, it is back to our politics and companies once again. Monsoon spread will also be closely watched and there was not very good news. Skymet yesterday cut the 2018 monsoon prediction to 92%. Skymet has said that currently, oceanic parameters are not at all favourable for enhancing monsoon rain during the second half of the season. Both the rainiest pockets of Northeast India and West Coast are likely to perform poorer than usual. Now this is seriously worrisome news. Market is likely to wait for IMDs report and it is also expected to change its stance – the report is to be released today. A lot will hinge on that….