Federal Reserve Keeps Interest Rates On Hold

Federal Reserve Keeps Interest Rates On Hold

The US Federal Reserve has kept interest rates on hold, shying away from what would have been the first hike in nearly a decade.

The world's most powerful central bank said it had left the cost of borrowing unchanged because US inflation was running well below its 2% target.

The Fed moreover said in its policy statement after a two-day meeting that "recent global economic & financial developments may restrain economic activity somewhat".

It added the risks to the US economy remained nearly balanced, yet that it was "monitoring developments abroad".

The prospect of a first US rate rise since 2006 had unnerved investors already rattled by China's sharp slowdown.

Fed chair Janet Yellen, who hasn't spoken publicly in two months, will deliver a statement imminently to further explain the decision.

Rates have remained fixed at 'practically zero' within a range of 0% to 0.25% since 2008 during the Great Recession.

A rise in rates would have been passed on to consumers & investors following an era in which a flood of cheap money – to assist boost lending in the wake of the credit crisis – has fuelled stock market values to record levels.

The dollar was weaker in the run-up to the Fed's decision at 19:00 BST, as investors bet against the bank pulling the trigger today despite a strong domestic economic argument for it to start raising rates.

The recovery in jobs demanded by the Fed appears to be in full swing, with the jobless rate currently standing at 5.1%.

The Fed anticipates the unemployment rate falling to 4.8% next year

Almost 13 million jobs have been added to the US economy since 2010 following the 8.7 million lost in the recession.

Average wage growth is rising & is currently at an annual rate of 2.2%.

Economists argue gradual rate increases are now needed to assist prevent new bubbles in housing costs & stock markets.

However, data released on Wednesday showed consumer price inflation falling unexpectedly in August – partly due to a strong dollar.

Ms Yellen & her colleagues on the Federal Open Market Committee were urged by the International Monetary Fund & World Bank, among other bodies, not to move because the rest of the world is not ready.

As well as the slowdown in China & other emerging markets, the eurozone is in the middle of a quantitative easing programme.

Fed officials meet again in October & December.

 

Source: “Sky News”