That means that when rates finally do rise, taking out a mortgage could get more challenging and carrying a balance on your credit card, while never a good idea, could sink you even deeper into debt. These rates help control how much money flows through the economy.
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The concerns have been exacerbated by a series of weak indicators suggesting growth will come in this year lower than 2014, which was the worst performance in a quarter of a century. “All told, it looks as if rates are still set to start rising this year, however there’ll only likely be one move and we’ll await Yellen’s comments regarding whether this is more likely to occur in October or December”.
At her news conference, Yellen stressed that even after the first increase from zero, interest rate policy will be “highly accommodative for quite some time”. This rate governs what banks charge each other for overnight loans.
“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate”, the Federal Reserve said in a news release.
Dr Yellen said on Thursday that the slowdown in China’s economy and other emerging economies, as well as volatility in global financial markets, contributed to the Fed electing not to press ahead with a first rate hike in nearly a decade.
What she does see now are too many lingering risks. Inflation has been running below 2% for more than three years.
As the Fed’s decision grew nearer, there was growing debate over whether the Fed, under Chairwoman Janet Yellen, had expanded beyond its two primary mandates of monitoring unemployment and inflation to include the financial markets. This could damage economic growth. But officials reduced their inflation estimates, thanks in part to downward pressures from lower oil prices and a stronger dollar.
The Fed has been effectively boxed into a corner as a result of a record-level quantitative-easing program that now appears to have provided little benefit to the USA economy. “The unemployment rate at 5.1 percent in August was down four-tenths of a percent from the latest reading available at the time of our June meeting, although that decline was accompanied by some reduction in the labor force participation rate over the same period”. Auto and home sales have accelerated.
The Fed said that while the USA job market is solid, there are reasons to be concerned about global economic growth. Someone, it seems, expects federal funds policy rate to be in negative territory at the end of 2016.
Notably, the worst performing sector on Thursday was financial stocks, which fell 1.3 percent, after rallying in recent days on what some investors interpreted as the market’s acceptance that an interest rate increase was forthcoming. “But what happens if the Fed misses the chance?” Bottom line, the problem now is not when the Fed will raise rates or not, it is the paralyzing discussion about when they will eventually raise rates. The Nasdaq Composite Index added 0.2 per cent. Stocks most sensitive to interest rates had the largest moves, with utilities and real-estate companies advancing more than 1.2 per cent while banks lost 2.4 per cent.
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The greenback has been under pressure on disappointment from the Federal Open Market Committee’s dovish statement, prompting investors to close out their long-dollar positions.
