Asian markets lifted by US Federal Reserve decision to hold rates

At her news conference, Yellen stressed that even after the first increase from zero, interest rate policy will be “highly accommodative for quite some time”. The two-year Treasury note, which would be more heavily impacted by higher short-term interest rates, had an even more dramatic move, dropping to 0.68 percent from 0.80 percent. “But volatility is likely to remain high as markets, like the Fed, will still have to confirm the US economy is withstanding the adverse impact from the global economy“, said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.

“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term”, the Fed said in a statement after a two-day meeting of its policymaking committee, the Federal Open Market Committee.

It’s too soon. By the October meeting, the Fed would have just one month’s worth of new data, and there’s not much that would have changed in the economy.

Financial markets, which have constantly forecast a far slower pace of policy tightening than the Fed’s projections, were less convinced.

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.

“The kiwi has come off its recent lows and is a fraction back in favour because of the mixed picture from the Fed, but also with milk prices coming off their very low levels”, said Stuart Ive, senior dealer at OMF. “We think that a rate hike could still be announced in December”.

“What was problematic is that the Fed introduced a greater measure of concern about global issues”, said Mr Jorge Mariscal, chief investment officer for emerging markets at UBS.

These were not universal downgrades, but all in all the Fed is less aggressive on Gross Domestic Product growth and is becoming more expecting of lower and lower inflation lasting longer. The Standard & Poor’s 500 index fell 5.11 points, or 0.3 percent, to 1,990.20, and the Nasdaq Composite index rose 4.71 points, or 0.1 percent, to 4,893.95. Lacker, president of the Fed’s Atlanta regional bank, had pushed for the Fed to begin raising rates by moving the federal funds rate up by a quarter-point. Some fear the economy might suffer.

Once interest rates rise, borrowing money will become more expensive, for consumers and for corporations.

The Federal Reserve failed to raise interest rates Thursday and thus failed to acknowledge the reality established by the markets: Interest rates have already risen.