Banking stocks continue to reel in the wake of the Fed decision as hopes that higher rates would translate to fatter profits on loans have been dashed.
The Fed said that while the USA job market is solid, there are reasons to be concerned about global economic growth.
Financial markets had been zigzagging with anxiety this summer as investors tried to divine whether the Fed would start phasing out the period of extraordinarily low borrowing rates it launched at a time of crisis. Market participants will await October’s meeting for further clarification regarding the timing of rates increase.
In response to criticism about light communication from Fed officials leading into their September policy meeting, he said the decision about when to go is proving challenging and it is appropriate for the Fed not to signal to Wall Street and the public too many specifics about what they are going to do, before their very lengthy discussions and analysis, and before a committee decision. “One might be to shift the Fed’s target range by 25bps, but express satisfaction if the overnight fed funds rate only rises to the bottom of the new range at 0.25%”, says Anderson.
The Dow Jones industrial average lost 65.21 points, or 0.4 percent, to 16,674.74. The Dow declined 290 points points.
In a rare move, the Fed pointed to global risks when explaining why it had delayed what would have been the first interest rate hike in almost a decade.
“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 on Thursday. “The market had a “rate rant” last month and that scared the Fed“.
But the Fed held fire, citing concerns about how the slowdown in China would hit the USA economy.
It also came despite a string of data in recent months showing the U.S. economy, the world’s biggest, is well on track to recovery. And the economy grew at a healthy clip of over 3% during the second quarter.
The signs of deepening recession abound.
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EUROPE SLUMPS: Germany’s DAX was down 3 percent while the CAC-40 in France fell 2.6 percent.
He said that there is now a good chance that we don’t see a rise in interest rates until next year.
Britain’s FTSE 100 index was also down 0.3 per cent at 6,170 points.
Stocks moved sharply lower over the course of the trading session on Friday, as traders continued to react to Thursday’s Federal Reserve decision.
The Federal Reserve announced Thursday that it is keeping interest rates unchanged (SEE: Federal Reserve will not be raising interest rates (updates)).
Nevertheless, she stressed, the Fed “should not be responding to the ups and downs” in markets and “it is certainly not our policy to do so”, she said.
“Our economy is in much worse shape than the Chinese economy”. Last week, the chief United States economist at JPMorgan Chase urged the Fed to begin lifting rates at its Thursday meeting. His vote was the first dissent on the FOMC this year.
“The stance of monetary policy will likely remain highly accommodative for quite a few time after the initial increase in the federal funds rate”, said Yellen.
In a press conference following the release of the statement, Fed Chair Janet Yellen reiterated the central bank’s concern over global developments.