“This seems to have been one of the most divisive [Fed] meetings in recent memory”, says Paul Ashworth, chief US economist at Capital Economics, a research firm.
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In her news conference, Reserve chairperson Janet Yellen offered a simple explanation for why they did not raise rates: The economy can still grow without hurting itself.
Until recently, many Fed watchers had thought that a rate hike was likely this week.
The decision suggests the Fed believes the US economy has sailed safely through headwinds that anxious officials earlier this year, including possible damage from Great Britain’s vote to exit the European Union.
In a post-meeting statement, the Committee noted that the case for an increase in rates “has strengthened”, but chose to “wait for further evidence of continued progress toward its objectives”. Fed officials said they expected that economic growth would not exceed 2 percent over the next three years.
It added that its rate-setting committee had decided against raising rates “for the time being”, until there was more evidence of progress towards its employment and inflation objectives.
Yellen said differences among Fed officials were easy to overstate.
In voting to hold rates at 0.25% – 0.5% the Federal Open Market Committee surprised few people, and doing so has put the investment spotlight firmly on the 8 November election. The central bank said risks to its economic outlook are “roughly balanced”.
Although there is still the risk of a looming rate hike, Mike Draghosits, senior commodity strategy at TD Securities, said that gold is seeing a bit of a rally following the statement because the Fed is in no hurry to raise interest rates.
Traders’ perception that a December rate hike is far from a sure thing, and that the Fed is on a slow path of rate normalisation, led them to favour longer-dated Treasuries over shorter-dated issues.
Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York.
“It’s incredibly tough to believe they would seriously consider raising rates a week before the US election”.
The US central bank said it made the decision due to recent weak economic data and tepid inflation.
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Local markets were waiting for the South African Reserve Bank’s interest-rate announcement on Wednesday afternoon. In August, she said the case for a rate hike had “strengthened”. However, the Fed sees inflation remaining “low in the near term”. This is similar to what the Central Bank of Nigeria did Tuesday, when it was widely expected that the bank would reduce rates in line with the expectation of the finance ministry.
