The U.S. Federal Reserve stood pat on its trendsetting interest rate Thursday, citing concerns about slowing USA inflation and the recent turmoil in global financial markets.
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The Fed noted the continued improvement in the United States jobs market and the economy in general but expressed concern about the knock-on effect of China’s slowing growth on the domestic economy. There are no surprises there.
In a press conference following the statement’s release, Fed Chair Janet Yellen said “the situation overseas bears close watching”, an acknowledgement of the recent flare up of volatility in global markets, such as in China.
The Fed’s long-term policy is to keep interest rates low until employment levels improve further and the main USA inflation rate approaches its 2% target.
The drop reflects the impact of cheap gas as well as a strong dollar on the cost of goods. The Fed has a mandate to stabilize price levels, which it has defined as 2 percent annual inflation.
BANK BLUES: JPMorgan Chase fell $1.65, or 2.6 per cent, to $61 as investors judged that lower interest rates for longer mean banks won’t be able charge more for loans.
The Federal Open Market Committee had spent two days discussing whether to undertake the first increase in the benchmark federal funds rate in more than nine years, breaking away from the extremely easy-money policy stance dating to the 2008 financial crisis.
The dollar fell about 1.2 percent, however, to 1.1422 against the euro. That’s why some think the Fed may choose not to raise rates while inflation is so low.
However, a growing number of economists, including those at Morgan Stanley and Barclays, are now wondering whether the Fed will raise rates at all this year.
“The committee continues to see the risks to the outlook for economic activity and the labour market as almost balanced but is monitoring developments overseas “.
The dollar was on the defensive, having fallen more than 1 percent after the Fed’s decision, while US bond yields plunged, erasing their sharp rises in the past couple of days. On the Nasdaq, 1,912 issues fell and 541 advanced.
The Federal Reserve’s September decision on interest rates is history. “It lacks the bold and necessary steps which must be taken to normalise monetary policy”.
Must Read: The Fed’s Problem? “There are some hints or guidance there that potentially, a Fed rate hike may not even happen this year”, said George Rusnak, Co-Head Of Global Fixed Income for Wells Fargo Investment Institute In Princeton, New Jersey.
“We value all the opinions of individuals and some interesting groups”.
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Betsey Stevenson, a former Chief Economist at the Labor Department who is now at the University of Michigan, tweeted that she believes the Fed made the right call.
