ON EXPECTED LINES – FED MAINTAINS STATUS QUO

By Ruma Dubey

No had expected the Federal Reserve to raise rates tonight and it did not disappoint – there was no decision on interest rates; it was kept status quo.

Yellen did send a strong signal though that the Fed was looking beyond economic growth, admitting that though growth would slow down in Q1, it would be transitory in nature.  But all were hoping that the Fed might give some indication about the next rate hikes but the statement was mum on that front , providing no direction for the June meet. In a way this is good as it gives the Fed the flexibility to do what it thinks is right as it has not committed to it today.

In the past meeting of March, the Fed has spelt it out very clearly that there would be a total of three rate hikes in 2017; one has already happened and now we await two more. The Fed is also getting closer to its inflation targets – the 2% goal is not far away and even unemployment is a level consistent with maximum employment mandate.

A quick look at the highlights of the Fed statement:

• The Fed decision was unanimous, keeping the benchmark rate steady in a range between 0.75% and 1%.
• Slow growth earlier this year was “likely to be transitory.”
• Near-term risks to the economic outlook appear roughly balanced.
• Inflation measured on a 12-month basis recently has been running close to the committee’s 2 percent longer-run objective.
• Household spending rose only modestly, but the fundamentals underpinning the continued growth of consumption remained solid

The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.

How will this affect the Indian markets tomorrow? No direct impact as such because this status quo was what the markets had widely expected. Yesterday, the market decided to remain listless for want of new triggers.

We will be back to company specific price movements. All eyes will be on the results of HDFC, Exide, HCC, Maharashtra Bank, HCC, Godrej Properties, Oberoi Realty. The performance of these companies will more or less decide the movement of the Index.