Every meeting is a live meeting. But inflation, the increase in the price of goods and services, has actually decreased, partially because of lower oil prices. The ultra-low loan rates the Fed engineered were meant to help the economy recover from the Great Recession.
In a clear reference to the recent turmoil provoked by the downturn in the Chinese economy, the Fed noted that it is “monitoring developments overseas “, even as it said that the risks facing the United States economy are still “nearly balanced”.
Stocks fell sharply Friday as investors processed the lingering cloud of uncertainty after the Fed’s decision to not raise rates from their record low.
Meanwhile, John Longworth, director general of the British Chambers of Commerce, said: “Given the current global uncertainty, the Fed was right to keep rates on hold for now, and avoid exacerbating the problem”. “October, it remains a possibility”.
However, policy makers were still focused on the spillover from China’s troubles and those in other major emerging market economies.
China’s economy has slowed for four straight years – from 10.6 per cent in 2010 to 7.4 per cent last year. In its statement, the <strong>Fedstrong> cited needing to see a stronger labor market and inflation moving towards that.
That is roughly half the pace of rate increases that occurred when the Fed last started raising rates in 2004. The calculation is based on the assumption that the effective fed funds rate will average 0.375 per cent after the first increase, near the mid-point of the range.
The dollar fell half a percent against the yen after a more moderate decline in the wake of the Fed announcement, buying 119.455 yen. “The Fed waited too long in the early 1990s and the early 2000s, and we’re replaying the tape”.
He said investors are likely to be cautious as they “are still digesting the rate decision and deciding what to make of it”.
Germany’s DAX index is leading the way down with a fall of almost 3%.
Stock markets tumbled, particularly in Europe, on concerns about what the rate pause indicates about the Federal Reserve’s opinion about the world’s economic outlook. They will consider whether to raise interest rates after nearly seven years. “We think that a rate hike could still be announced in December”, said Robert Parkes, equity strategist at HSBC.
The Fed’s median projection for core PCE inflation of 1.4% this year, rising to 2.0 by 2018.
The 10-year notes yield slipped to 2.192 percent from Wednesday’s 1 1/2-month high of 2.303 percent.
Yet the Fed’s influence on many consumer and business rates is only indirect. Rates in the USA have been held at near zero since December 2008.