Energy stocks help lift TSX, US markets flat after Federal Reserve announcement

Posted September 22, 2017

"That said, it also reflects a softer United States dollars ahead of a key FOMC meeting tomorrow morning".

The gold price edged lower on Wednesday (September 20) after the US Federal Reserve left interest rates unchanged and announced it will begin reducing its balance sheet next month.

The Fed is trying to avoid disrupting this growth by outlining its plans clearly to avoid the type of uncertainty that tends to unnerve investors and rattle markets.

Despite the hurricane impact, the Fed said it "continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and the labor market will strengthen somewhat further". Her term expires early next year, and it's unclear if President Donald Trump will re-appoint her to the job.

Fed officials continue to expect that the USA economy will expand at a moderate pace in the future. "People are in a wait-and-see mode ahead of the Fed meeting", said Bret Chesney, a senior portfolio manager at Alpine Global Management. But Blinder says he doubts consumer interest rates will be affected at all in the short term.

The overall tone signaled that the Fed is committed to carry on the rate hike schedule (three increases for 2017) as indicated earlier this year.

However, analysts were unsure about any further increases this year with inflation remaining subdued - apart from a bigger-than-expected jump in August - and other indicators still soft. In a press conference, Yellen described it as something of a mystery. That's because it's too soon for Fed officials to abandon that framework for forecasting price pressures, said Josh Wright, chief economist at iCIMS Matawan, New Jersey.

"The majority of the consensus is there will be one more hike this year, and if that remains the case, gold should still remain reasonably well supported with what's happening geopolitically", the trader said.

The Federal Reserve on Wednesday maintained its benchmark interest rate at a range of 1% to 1.25%. Economists surveyed by Bloomberg see the long-run median edging down to 4.5 percent.

In late 2015 the central bank hiked rates for the first time since the 2007-2009 financial crisis and recession.

Oil prices rose after Iraq's oil minister said Organization of the Petroleum Exporting Countries producers and others were considering extending a supply cut, and after data showed US crude stocks were lower than expected. He compared it to Hurricane Katrina, which the U.S. government estimates caused $108 billion in damages when it struck in 2005.

As a recap of the plan announced in June, the Fed has set the cap at US$10B/ month initially.

-The MSCI Emerging Market index was little changed. While the decision to shrink the Fed's balance sheet is much expected, when and how the Fed will manipulate its target for short-term interest rates is less clear.

It is also a policy activity in which Fed officials have no experience, which is perhaps why they chose to slowly escalate the amount of assets they are going to see slide off the balance sheet; this method allows the Fed to see how big of an impact the asset reductions are having, and adjust interest rate policy accordingly.