Global stocks pull back amid Fed vow to keep rates low

Top News | Agencies and Kevin Xu 18 Sep 2020

Global stocks retreated after the US Federal Reserve pledged to keep interest rates near zero and signaled it would stay there for at least three years, vowing to delay tightening until the United States gets back to maximum employment and 2 percent inflation.

The US central bank "expects to maintain an accommodative stance" until those outcomes are achieved, it said in a statement following a two-day meeting.

The fresh guidance is the Fed's first step in an evolving communication strategy after it unveiled a new long-term policy framework last month.

The new plan allows inflation to overshoot its 2 percent target after periods of underperformance.

Announced by chair Jerome Powell at the Fed's Jackson Hole conference, officials expect to refine their approach to economic projections later this year, and they may reach a consensus on how to discuss their balance sheet.

Powell, while cautioning that "the path ahead remains highly uncertain, added: "The recovery has progressed more quickly than generally expected."

UniCredit analysts wrote: "Those who were expecting more input from Fed monetary policy after the adoption of an average-inflation target regime remained disappointed."

A Hong Kong Monetary Authority spokesperson said the Fed's decision to keep interest rates unchanged was in line with market expectations.

The HKMA sold HK$3.1 billion into the market as the local currency hit the strong end of its trading band, according to data released by the HKMA.

As the quarter-end approaches and with funding demand being driven by initial public offerings, Hong Kong dollar interbank interest rates have increased slightly but remained relatively low, the spokesperson said.

The Hongkong and Shanghai Banking Corporation said it will hold its best lending rate unchanged at 5 percent.

The benchmark Hang Seng Index was down 384.78 points, or 1.56 percent, to close at 24,340.

HSBC fell 2.68 percent in its worst day since August 3, as investors averted the banking sector due to a low-interest rate environment, while bad debt, tensions between China and the United States and Brexit-related uncertainties also weighed on sentiment.

Xiaomi sank 6.37 percent to HK$21.30, the worst performer among blue-chip stocks.

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