Fed Leaves Key Interest Rate Unchanged, Citing Low Inflation

The USA dollar traded a touch higher against major world currencies, with the euro below $1.14 and the yen at 119.8 yen against the greenback. Investors are concerned with when the interest rate hike could come, as it will be the first in almost a decade following the Great Recession. “The domestic USA economy is OK, and the risk is not the Fed”, he says.

The Fed might also have to wait and see how the slowdown in China would affect the USA economy. “Unequivocally, the Fed was on the cautious side of things”, said ANZ’s Sam Tuck.

Even if there’s a press conference, there won’t be a new Summary of Economic Projections outlining where the Fed sees economic growth, inflation, and the unemployment rate. This appeared to be a reference to China, the world’s second-largest economy. “Is the economy growing?”

The Fed had cited concerns about weakening global growth and recent stock market volatility.

But a rate raise would make many things more expensive for consumers, from monthly credit card bills on carried debt to higher mortgage rates for some.

Even after the first increase off of zero, Fed interest rate policy will be “highly accommodative for quite some time“, Yellen stressed.

The decision, though, has been preceded by calls for the U.S. central bank to move gingerly. “The US economy is firing on more cylinders now than at any other time in this cycle, but for whatever reason the Fed is spooked”.

The Federal Reserve’s September decision on interest rates is history.

Longer-dated US debt yields plunged, with the two-year notes yield dropping to 0.686 percent, returning to its familiar range only a day after it hit a 4 1/2-year high of 0.819 percent.

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. If rates remain at that level, it would limit the Fed’s ability to respond to economic downturns. Some economists and investors had predicted that Fed policymakers would lift rates by a quarter of a percentage point. While the rate hike has been put off for now, Yellen has remarked that the Committee was persuaded that a hike would be appropriate before the end of this year.

A hike is still on the table before the end of the year.

The new forecast significantly lowered the expectation for inflation this year to show the Fed’s preferred inflation gauge rising just 0.4 percent, down from a 0.7 percent forecast in June. Platinum at $982/987 was up $1 and palladium climbed $2 to $610/615.