Top News | Sep 18, 2014

US Fed leaves interest rate unchanged

The FOMC (Federal Open Market Committee) of the US Fed yesterday decided to leave both the Federal Funds target rate (between 0% and 0.25%) and the pace of asset purchases within the QE3 program unchanged. Further, the FOMC reiterated the guidance of low Fed Funds for a considerable time after QE3, especially if inflation expectations remain below the 2% target. While QE3 will likely be terminated as planned, the FOMC’s median expectations for Fed Funds by the end of 2015 increased to 1.38% (from 1.13% previously, also the expectations for 2016. Hence, longer maturity US Treasury yields felt some pressure resulting in a 5 bp increase of the 10-year segment, supported by the dissent of the FOMC-hawks Plosser and Fisher who believe the still rather dovish forward guidance on Fed Funds do not accurately reflect the recent economic developments, while equity markets closed essentially unchanged. Today, all eyes will be on Scotland where the referendum on independence from the UK is held. Further relevant events are the SNB meeting with the important decision on potentially negative rates and the initial take-up of the ECB’s TLTRO, where a size of EUR 100bn to EUR 150bn is expected.

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