No liftoff: Federal Reserve leaves rates near 0%

However, the market already seems to have accounted for a Fed rate hike by now with FIIs pulling out more than ₹20,000 crore in August-September.


THE US Federal Reserve takes centre stage in the coming week, eclipsing industry data from China, another grim inflation reading from the euro zone and rate decisions in Japan and Switzerland. Its monetary policy determines what happens to currencies, stock markets and economies right around the world. Ten years ago that rate was near 6% and 20 years ago it was 7.5%, according to the St. Louis Fed. Around the same time, Bank of America and JPMorgan stocks are up 0.37% and 0.63%, respectively. But it influences other rates throughout the economy. So, it becomes tougher for the Fed to raise interest rate which would further strengthen the dollar. The dot-plot now comes with interest rate figures in the Sep forecast table, and these funds rate estimates were lowered as expected. In doing so, the Fed would try to avoid derailing the economy or spooking investors.

The answer, using Pr. Damodaran’s honest assumptions and holding all other inputs constant, is that a quarter-point hike would reduce the value of the S&P 500 by less than 4% to roughly 1,900. Interest rates are still low and will remain historically low for quite some time. And even if you did know what Ms. Yellen was going to say tomorrow, there would be no way of predicting how exactly the market would price-in this information; making tomorrow’s Fed meeting a double entendre of risk. It’s high time U.S. investors stopped fixating on the Fed and got back to the business of investing.

“The only reason they will start to raise rates now is to have some firepower if there is another downturn”, Mr Murphy said.

“We’ve been obsessing about it for so long and maybe it’s finally dawned on the market that the “when” doesn’t matter as much as how far and how fast the Fed will go”. It raised its expectations for economic growth this year to 2.1 percent from 1.9 percent, and it lowered its projection for the unemployment rate by the end of the year to 5 percent.

Why is the Fed considering a move now?

Pay growth has barely improved, for example.

Shares of Fiat Chrysler Automobiles were up 2.8 per cent at $14.74 after the United Auto Workers union said it will keep talking with the automaker to reach a new contract for the company’s USA factory workers, delaying a possible strike at its most profitable operations.

In addition, the Fed’s preferred inflation measure is tracking just 0.3 percent annually, largely because of falling energy prices.

There is a strong domestic economic argument to start raising rates.

That is exactly what’s been happening in the last few months.


When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The question is if global markets really will behave any better ahead of the December meeting? The committee will also be concerned that beginning a tightening cycle could exacerbate extant fragility in financial markets, potentially destabilizing an increasingly tenuous economic and financial outlook across emerging Asia. It’s unclear how much of a role those voices played, although protestors stood outside the Fed’s meeting spot this week urging them not to raise rates until more people have jobs. Yellen’s remarks at her news conference may shed some light.

U.S. Futures Little Changed as Asian Shares Struggle