The central bank held its benchmark rate near zero Thursday, showing policy makers think inflation still has a way to go to reach their 2 per cent target amid an uncertain outlook for global economic growth. “China is a concern, and oil prices look set to take another leg lower“.
Given the USA dollar’s role as a universal currency, the Fed’s rate hike will have a wide spillover effect.
That unknown is the worldwide economy.
It added that the risks to the U.S. economy remained almost balanced but that it was “monitoring developments abroad”. Higher rates could dent demand for non-interest paying bullion, while boosting the dollar.
The FOMC statement said that household spending and business investment were increasing at a moderate pace, and that home construction was picking up, but exports were “soft”.
Stocks ended mostly lower after a volatile day as traders tried to decide on the path of interest rates.
“This is probably a stimulus for a little longer”, Mokrzan said.
Fed Chair Janet Yellen retreated on the impending rise due to concerns regarding the global economy and China’s slowdown. The Wall Street Journal’s editorial board wrote, “The Fed predicts a stronger economy and rising inflation next year, but somehow they never arrive”.
Another possible explanation for the stock selloff today: investors were split on what the Fed was going to do.
Bond investors seemed cheered by the Fed’s decision to keep rates ultra-low.
The vote to maintain the interest rates at the range of 0 to 2.5% was 9-1. Jeffrey Lacker was the one Fed governor to dissent, arguing for a quarter-point increase. By contrast, inflation remains subdued, with the Fed’s preferred indicator at just 0.3 percent.
John Williams, a centrist and president of the San Francisco Fed, said the arguments for and against beginning to tighten USA monetary policy are about balanced now that the economy is on solid footing, giving him confidence in continued economic and labor market growth.
Both he and Boston College economics professor Robert Murphy said they anticipate a December rate hike, since the Fed “doesn’t want to surprise the markets”, Yaylaci said, “especially in the midst of current financial volatility”. Goldman Sachs economists, who have been calling for the first rate hike to happen in December, believe strongly that we certainly won’t see a rate hike in October.
That was underscored by a downward turn in the U.S. consumer price index on Wednesday, confounding Fed hopes of seeing a pickup in inflation.
In Asia, Japan’s Nikkei shed 2%. Its stock fell $1.31, or 1.5 percent, to $83.95.