A divided Federal Reserve left its policy interest rate unchanged to await more evidence of progress toward its goals, while projecting that an increase is still likely by year-end.
“Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in its statement Wednesday after a two-day meeting in Washington. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”
The sixth straight hold extends U.S. central bankers’ run of getting cold feet amid risks from abroad and inconsistent signs of economic strength. Now the focus will shift to December as the Fed’s likely last chance to raise interest rates in 2016 — a move that depends on how the economy, inflation and markets fare in the months surrounding a contentious presidential election.
“The statement is much more hawkish than I thought it would be,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York, who said he expects a rate increase in December. “That just tells you they are revving up the engines.”
Three officials, the most since December 2014, dissented in favor of a quarter-point hike. Esther George, president of the Kansas City Fed, voted against the decision for a second straight meeting. She was joined by Cleveland Fed President Loretta Mester — in her first dissent — and Eric Rosengren, head of the Boston Fed, whose previous dissents called for easier policy.
“Our decision does not reflect a lack of confidence in the economy,” Fed Chair Janet Yellen said at the start of her press conference. “Since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future.”
Stocks climbed with Treasuries after the decision, while the dollar declined and gold rallied. The Standard & Poor’s 500 Index extended gains after the Fed’s statement, while a gauge of the U.S. yield curve flattened as the shortest-maturity debt underperformed. The greenback lost ground against all but two of its major peers.
The central bank’s so-called “dot plot”, which it uses to signal its outlook for the path of interest rates, showed that officials expected one quarter-point rate increase this year. Three policy makers projected that keeping rates unchanged this year would be most appropriate. Officials scaled back expectations for hikes in 2017 and over the longer run.
Policy makers see two rate hikes next year, down from their June median projection of three.
The Fed said that the labor market will “strengthen somewhat further,” adding the qualifier “somewhat further” to similar language from the July statement.
“Although the unemployment rate is little changed in recent months, job gains have been solid, on average,” the Fed said in its statement. “Household spending has been growing strongly but business fixed investment has remained soft.”
The target range for the benchmark federal funds rate remains at 0.25 percent to 0.5 percent, where it’s been since a quarter-point increase in December 2015 that ended seven years of near-zero rates.
The Fed repeated that it “continues to closely monitor inflation indicators and global economic and financial developments.”
The FOMC reiterated that borrowing costs will probably rise at an “only gradual” pace. Policy makers also reiterated that they expect inflation to rise to their 2 percent goal over the medium term.
Because November’s FOMC meeting comes within a week of the U.S. presidential election and isn’t followed by a press conference with Yellen, economists have viewed the Fed’s December meeting as a more likely candidate for an increase.
The latest decision could embolden Republican presidential nominee Donald Trump to unleash additional attacks on Yellen. The billionaire businessman said last week that the Fed “is being totally controlled politically” and might stand pat on rates for the rest of year.
Yellen, a former economics professor at the University of California at Berkeley, was appointed Fed chair by President Barack Obama and served as President Bill Clinton’s top economic adviser.
The decision comes as Fed officials become more convinced that the economy is experiencing a new normal.
Policy makers scaled back their median projection of the long-term interest rate to 2.9 percent from 3 percent in June. The estimate shows how high officials think rates can climb, so its downgrade suggests a shallower hiking cycle.
Fed officials also cut their median growth projection for 2016 to 1.8 percent from 2 percent, mirroring the drop in the longer-run forecast, based on median estimates. Inflation is projected at 1.3 percent in the fourth quarter, down from a forecast of 1.4 percent in June. Policy makers again projected that inflation will reach the 2 percent target in 2018.
Most economists had expected the committee to stay on hold, assigning just a 15 percent chance of a hike this month. Fed watchers saw a 54 percent probability that the Fed will raise rates at its December 13-14 meeting.
Yellen is scheduled to hold a press conference at 2:30 p.m. in Washington. It will be her first public remarks since a speech last month, when she said that the case for an interest-rate increase “has strengthened in recent months.”
Nonfarm payrolls have climbed by 182,000 jobs on average so far this year, although the most recent report showed a cooling to 151,000 job gains along with moderating wage increases. Other figures have shown declines in August retail sales and industrial production, as well as drops in sentiment at service companies and manufacturers.
Inflation is still running below the Fed’s 2 percent goal. After picking up earlier in the year, annual gains in the headline personal consumption expenditures price index slowed to 0.8 percent in July. Core inflation, which excludes food and fuel costs, is firmer though still undershooting at 1.6 percent.
Meanwhile, inflation expectations have stayed relatively low. A gauge of market-based expectations watched by the Fed is projecting a pace of price gains of about 1.5 percent in the period five to 10 years out.
The Fed repeated on Wednesday that “market-based measures of inflation compensation remain low.”
Oil Prices Slide as U.S. Crude Stockpiles Surge, Heightening Demand Concerns
Oil prices declined on Thursday as concerns over demand intensified due to a larger-than-anticipated build in U.S. crude stockpiles.
Brent crude oil, against which Nigerian oil is priced, dropped by 0.5% to $83.25 a barrel while U.S. West Texas Intermediate crude oil fell by 0.3% to $78.28 a barrel.
The Energy Information Administration’s report revealed a substantial increase in U.S. crude oil stockpiles by 4.2 million barrels to 447.2 million barrels for the week ending February 23rd.
This surge surpassed analysts’ expectations and marked the fifth consecutive week of rising inventories.
While gasoline and distillate inventories witnessed a decline, concerns regarding a sluggish economy and reduced oil demand in the U.S. were amplified.
Satoru Yoshida, a commodity analyst with Rakuten Securities, highlighted that the significant stockpiles have heightened investor worries.
Moreover, the anticipation of delayed U.S. interest rate cuts further weighed on market sentiment, potentially undermining oil demand.
Traders have adjusted their expectations for rate cuts, with an easing cycle predicted to commence in June rather than March as previously anticipated.
Market participants await the U.S. personal consumption expenditures price index for insights into inflation trends, while the possibility of an extension of voluntary oil output cuts from OPEC+ looms over price dynamics, amid lingering uncertainty in the demand outlook and geopolitical tensions in the Middle East.
Crude Oil Shortage Threatens Dangote, Government Refineries, Minister Raises Alarm
The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has sounded a clarion call over a looming crude oil shortage that threatens the operations of the newly inaugurated Dangote Petrochemical Refinery and government-owned refineries in Nigeria.
Addressing stakeholders at the seventh edition of the Nigeria International Energy Summit in Abuja, Minister Lokpobiri expressed concerns that unless deliberate efforts are made to increase investments and crude oil production, these refineries may struggle to obtain enough feedstock for petroleum product manufacturing.
The Dangote refinery, a colossal project spearheaded by Dangote Industries Limited, has a daily requirement of up to 650,000 barrels of crude oil, while government-owned refineries could need approximately 400,000 barrels.
However, the current pace of crude oil production and investment in Nigeria falls short of meeting these demands.
Minister Lokpobiri highlighted the need to ramp up production and attract investments in the upstream sector to ensure adequate feedstock supply for the refineries.
He emphasized the importance of efficiently utilizing Nigeria’s abundant oil and gas reserves to enhance domestic energy security and economic prosperity.
Furthermore, the minister underscored the significance of investing in energy infrastructure and transitioning towards more environmentally friendly practices to address Nigeria’s energy needs effectively.
The alarm raised by Minister Lokpobiri underscores the urgency for strategic interventions and collaborative efforts to mitigate the impending crude oil shortage and secure the future of Nigeria’s refining industry amidst evolving global energy dynamics.
NNPCL Pledges End to Nigeria’s Energy Scarcity Within a Decade
The Nigerian National Petroleum Company Limited (NNPCL) has announced a bold initiative aimed at ending Nigeria’s persistent energy scarcity within the next decade.
Mele Kyari, the Group Chief Executive Officer of NNPCL, revealed this ambitious plan during the opening ceremony of the seventh Nigerian International Energy Summit in Abuja.
Kyari’s announcement comes as a beacon of hope for millions of Nigerians grappling with chronic power shortages and energy deficiencies.
In his statement, Kyari expressed confidence that all issues related to energy scarcity in the country would be resolved within the next 10 years.
Assuring stakeholders of NNPCL’s unwavering commitment, Kyari emphasized the company’s dedication to collaborating with partners to bridge the energy deficit gap and foster prosperity for all Nigerians.
He highlighted NNPCL’s pivotal role as a key partner to oil-producing companies in Nigeria, facilitating the divestment of international oil companies from onshore and shallow water assets in the country.
Furthermore, Kyari underscored NNPCL’s statutory mandate as the enabler of national energy security, emphasizing the importance of sustainable production from divested assets to ensure energy security for Nigerians.
In addition to addressing domestic energy challenges, NNPCL is also exploring avenues for sustainable energy investment across Africa.
Kyari revealed the company’s intention to invest in the proposed African Energy Bank, aiming to secure funding for energy projects on the continent and guarantee regional energy security.
The event, attended by prominent stakeholders including government officials and representatives from international organizations, marks a significant step towards reshaping Nigeria’s energy landscape and fostering economic development through improved energy access.
As NNPCL charts its course towards energy abundance, Nigerians remain cautiously optimistic about the prospects of a brighter energy future.
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