Updated at 5 p.m. “The concern was that the outside of the USA particularly in China and emerging markets the growth is very fragile which is not a very positive statement for global investors to put money back in emerging markets”, he said. That, Mr. Bullard said, would maintain “an exceptionally accommodative monetary policy over the next three years“. “October, it remains a possibility”.
Advertisement
Earlier in the week, the Organisation for Economic Cooperation and Development (OECD) said the Federal Reserve would be right to begin raising interest rates this week while warning that uncertainty about the path of tightening poses a greater threat to the economy.
Ms Janet Yellen, the Fed’s chairwoman, described the decision as a close call and said it still expected to raise interest rates later this year. Yellen said that could be “disruptive to the real economy“. Investors interpreted the move as a signal that the global economy is weak.
She added: “An argument can be made for a rise in interest rates at this time but the committee decided to wait for more evidence that inflation will rise to 2 per cent in the medium term”.
Meanwhile, USA privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,126,000, according to the commerce department on Thursday.
The Fed might clarify its inflation views in its policy statement or through the inflation forecast in its updated economic projections.
Goldman Sachs chief Lloyd Blankfein had predicted that the Fed would hold rates.
“Financial markets tend to wax and wane, sometimes suddenly”.
By 0849 GMT on Friday the South African rand had gained 1.35 percent to 13.1800, with renewed appetite for emerging market assets lifting the currencies of these economies.
At the end of the session, the Fed resolved that interest rates will remain unchanged. Meanwhile, the economy will experience persistent deflationary pressure and markets will continue to debate the need for more policy action from the authorities, including a potential devaluation of the Chinese yuan. There have been recent economic indicators that show a strengthening American labor market, however, inflation is below the 2 percent mark the Fed would like to see.
Advertisement
This, in turn, would have forced other central banks to hike rates – at the same time as trying to foster growth – in a bid to support their currencies and prevent a flight of capital. The bank knows that Wall Street, Congress and investors around the world look closely at every word.
