The Federal Open Market Committee (FOMC) held its sixth meeting on Wednesday to discuss monetary policy and the potential of an interest rate hike, which is expected to happen at least once before the close of 2017.
"In view of realised and expected labor market conditions and inflation, the committee chose to maintain the target range for the federal funds rate at 1 to 1-1/4 per cent, " the Federal Open Market Committee (FOMC) said in a release. After leaving its benchmark rate at a record low for seven years after the 2008 crisis, the Fed has modestly raised the rate four times since December 2015 to a still-low range of 1 percent to 1.25 percent. An inflation rate of 2 percent is the Fed's general goal, and a benchmark for gauging economic health to raise rates.
Japan's Nikkei gained 0.8 percent as a rise in US bond yields lifted financial shares, while the yen's fall against the dollar after the Fed's decision helped exporters.
"Hurricanes Harvey, Irma and Maria have devastated many communities, inflicting severe hardship", the Fed said in a statement after a two-day meeting of its policy committee. But they said the storms would not "materially alter" the country's economy overall. It also noted these may "boost inflation temporarily".
Bond yields had inched lower ahead of the Fed meeting, then jumped alongside the US dollar after the bank suggested it is open to raising rates once more this year in December, and three times next year.
"The Fed is going to raise rates again in December", Andrew Brenner, the head of global fixed income at NatAlliance Capital Markets, wrote in an email to clients.
While the United States economy and especially its labor market has been relatively strong - unemployment has been below 5% since early 2016 - there has not been much indication that prices are starting to seriously accelerate, which traditionally prompts the Fed to pull back the reins and raise rates.
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Just as the Fed had never before engaged in a bond-buying spree of such magnitude, it has never attempted to shrink a portfolio that is now roughly five times its size before the financial crisis.
The Fed's modest tightening efforts despite low inflation has attracted criticism from both economists and some left-wing activists who say the central bank is choking off economic growth for the sake of preventing nonexistent inflation.
The Fed is expecting increases. That has now changed and when the programme gets up to speed the Fed will be reducing its balance sheet by $600bn a year.
The Fed's key interest rate - which underpins borrowing costs in the U.S. - is now between 1% and 1.25%.
"The focus was on the Fed's thoughts on inflation and any implications for the pace of tightening outlined in the "dot plot".
Analysts widely believed that inflation developments will determine the timing of next rate hike. Instead they employed an unusual central bank tool called quantitative easing.
"There are many structural drivers holding down inflation around the world and we see a benign inflation outlook across Asia".