What the Federal Reserve wants to see before raising rates

The USA economy is relatively strong compared to its peers, but a global economic slowdown, low inflation in the US and volatile stock markets encouraged the Fed to once again punt on raising rates.

Today’s situation “lines up in so many ways” with that of 2013, said Ms Aneta Markowska, chief USA economist at Societe Generale in New York, pointing to the upcoming fiscal showdown and emerging market concerns.

The Australian dollar firmed to 72.25 U.S. cents from 71.86 USA cents Thursday, and well up from the six-year lows of below 69 cents touched last week.

In the end, the Fed chose not to raise rates.

Ultra-low interest rates tend to help the stock market because they make bonds, CDs and other income-producing investments less appealing by comparison.

Trader Gregory Rowe, left, and specialist Mario Picone work on the floor of the New York Stock Exchange, Thursday, September 17, 2015.

The next Fed meeting will occur in October. “October, it remains a possibility”.

Different measures of “core” inflation are even closer to trend. The worldwide Monetary Fund expects the Chinese economy to grow just 6.8 per cent this year, slowest since 1990. A higher Fed rate would eventually send rates up on many consumer and business loans.

Europe’s markets opened slightly weaker on Friday following on from a day of broad gains in Asia.

We’ll be back with the complete statement and market reaction when it crosses.

Along with the zero interest rate policy, or ZIRP, the Fed instituted three rounds of bond buying knowing as quantitative easing, a program that took the central bank’s balance sheet past the $4.5 trillion mark.

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”. Because it chose not to raise rates on Thursday, investors will be fretting for months about when the big day will actually arrive.

In what amounted to a tactical retreat, Yellen said in her statement that developments in a tightly linked global economy had in effect forced the US central bank’s hand, and warned that recent developments overseas and in financial markets could put further downward pressure on inflation in the near term. The Fed might pause for months after its first hike and assess the consequences before proceeding further.

“However normalisation appears increasingly imminent, with a first rate rise now likely in December”. The FTSE 100 index of leading British shares was 0.4 percent lower at 6,161. The Standard & Poor’s 500 index was up a point to 1,996 and the Nasdaq composite edged up 10 points, or 0.2 percent, to 4,899.

Following the announcement, Ms Yellen told a news conference: “A lot of our focus has been on risks around China, but not just China, emerging markets more generally and how they may spill over to the United States”. Others contended that with the USA job market considered essentially recovered from the Great Recession, it was time to start edging towards normal rates. So on Thursday, it said essentially that it needs more time before finalizing a decision. The idea would be to set a floor on interest the banks charge their customers: Banks wouldn’t be willing to lend at lower rates than they’re receiving from the Fed.