While inflation persistently below their target gives Fed policymakers reason to wait until they can be confident it will reach the objective, the U.S. labor market continues to strengthen, with the jobless rate falling to a seven-year low of 5.1 percent last month.
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The United States Federal Reserve is keeping USA interest rates at record lows in the face of threats from a weak global economy, persistently low inflation and unstable financial markets. There are no surprises there.
“The situation overseas bears close watching”, Fed chair Janet Yellen said at a press conference Thursday.
Despite Friday’s decision to hold the hike, it is widely believed a rate increase is on the cards.
“Low U.S. interest rates have encouraged borrowing in dollars, and this capital has flowed into emerging markets in search of higher returns”.
“Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate”. The crowd began raising rates in January, the Fed will catch up, and in order to justify its action, some news will arrive, or be created, to justify raising interest rates for the first time in a long time.
Rates futures placed an 11 percent chance on Friday that the Fed would raise rates in October, down from 41 percent early on Thursday, according to CME Group’s FedWatch program.
The Australian dollar was up 0.3 percent against the greenback at US$0.7189, while the New Zealand dollar also rose 0.3 percent, to US$0.6400.
“The bigger issue here was the worldwide situation – the idea that there was a global slowdown”.
Yellen reiterated that market should pay less attention to the timing of the first interest rate increase and more attention to the expected path of rates. USA stock indexes were up slightly and roughly where they were before the Fed released its policy statement at 2 p.m. In New York, the Dow Jones industrial average sank 217 points (1.3 per cent) while the S&P 500 dropped 21.5 points (1.1 per cent).
However, the tech-heavy Nasdaq was up 4 points at 4,893.
The dollar fell about 1.2 percent, however, to $1.1422 against the euro.
Mr Richard Jerram, chief economist at Bank of Singapore, said: “The Fed cares about how events outside the country might affect the USA economy. It lacks the bold and necessary steps which must be taken to normalise monetary policy”.
In a note to clients following the Fed’s latest meeting, Goldman Sachs maintained its projection that rates will be adjusted in December.
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The Fed Committee will be meeting again next month and further in December.
