Federal Reserve signals December interest rate hike

Investors are positioning for a rate increase at the end of the year. Photo / Bloomberg

US stocks and longer-dated debt rose, while the greenback weakened, after the Federal Reserve kept its target interest rate unchanged but signalled a hike later this year.

"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 Federal Open Market Committee said in a statement.

Three officials-Esther George, Loretta Mester, and Eric Rosengren-voted against keeping the fed funds rate steady, each of whom preferred at this meeting to raise the target range a quarter point to between 0.5 and 0.75 per cent.

Shorter-dated US government debt fell while 10-year Treasuries rose, reflecting expectations that investors are toning down bets on Fed rate hikes further down the road.

"Our decision does not reflect a lack of confidence in the economy," Fed Chair Janet Yellen said at the start of her press conference, Bloomberg reported. "Since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future."

Yields on the 10-year note fell two basis points to 1.67 per cent, while yields on two-year notes rose two basis points to 0.79 per cent.

"That really stands out that they've become significantly more dovish in their projection materials, but clearly trying to signal to the market that December is very much live," David Keeble, New York-based head of fixed-income strategy at Credit Agricole, told Bloomberg.

"It's looking very likely we'll get one this year, but after that it goes flat."

Wall Street also moved higher. In 2.56pm trading in New York, the Dow Jones Industrial Average increased 0.4 per cent, while the Nasdaq Composite Index gained 0.5 per cent. In 2.41pm trading, the Standard & Poor's 500 Index climbed 0.5 per cent.

Investors are positioning for a rate increase at the end of the year.

"The body language makes it sound like they're warming people up for December," Stephen Massocca, chief investment officer at Wedbush Equity Management in San Francisco, told Reuters.

Our decision doesn't reflect a lack of confidence in the economy.

Fed Chair Janet Yellen

The Dow advanced as gains in shares of Chevron and those of Boeing, recently each trading 1.5 per cent stronger, outweighed declines in shares of Procter & Gamble and those of Walt Disney, down 2.1 per cent and 1.1 per cent respectively.

Shares of FedEx jumped, up 6.8 per cent as of 3.08pm in New York, after the shipping company upgraded its full-year earnings forecast, and offered an upbeat outlook on the impact of its acquisition of TNT Express.

"The integration of TNT Express is proceeding smoothly, and the level of team members' engagement is outstanding," Frederick Smith, FedEx chief executive officer, said in a statement. "Managing our operating companies as a portfolio of customer solutions helped FedEx achieve strong financial and operating results in the quarter, especially given the global economy's continued low growth."

In Europe, the UK's FTSE 100 Index eked out a 0.1 per cent gain, Germany's DAX index added 0.4 per cent, while France's CAC 40 index rose 0.5 per cent.