Fed RBNZ Keep Interest Rates Steady

That was a soft back-pedal from December when they said risks were “balanced”, and some economists said it makes an interest-rate hike at the next FOMC meeting in March less likely, while not precluding it. The FOMC left the target for their benchmark rate unchanged at 0.25 percent to 0.5 percent.

In keeping with the Federal Reserve’s dual objectives of maximum employment and inflation reaching its 2 percent objective, the committee has made a decision to not raise the federal funds rate and keep it steady at a quarter of a percent.

Gapen said Wednesday’s statement didn’t change his forecast for a rate bump in March, although he added that move was dependent on an easing of market turmoil and satisfactory incoming economic data. US central bankers had to acknowledge dimming expectations of global growth that have resulted in a sharp stock market sell-off while avoiding a definitive directional hint on the timing of the next rate increase.

Since the Fed increased rates December 16 from record lows, stock markets have plunged, oil prices have skidded and China’s leaders have struggled to manage a slowdown in the world’s second-biggest economy.

“From the Fed’s lens, what we saw from the open of the new year isn’t sufficient to push it off course” on raising rates, said Neil Williams, chief economist at Hermes Investment Management.

The prospect of rising interest rates in the US also has unsettled investors, causing many analysts to predict the Fed might delay the next increase until spring or later.

January’s assessment of household spending and business fixed investment was a downgrade from December, when the Fed said they had been increasing at “solid” rates in recent months.

But the economic news since the meeting has tended not to support the four quarter-point rate hikes envisioned.

The Fed’s decision was approved by a unanimous vote of 10-0.

St. Louis Fed President James Bullard dissented from this change, saying the new language “is not sufficiently focused on expected future deviations of inflation from the goal”.

And while the Fed tempered its economic outlook Wednesday, it appeared to place more emphasis on a labor market that has continued to churn out well over 200,000 jobs a month.

“The equity market wanted more from the Fed”, he said. And the unemployment rate remains a low 5%.

The Fed said on Wednesday that a range of recent labor market indicators, including “strong” job gains, pointed to some additional firming of the job market.

Given the economic outlook, the Committee chose to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The current implied probability of a hike from 0.50 to 0.75 is at 33 percent for the March meeting, and 13 percent at the January meeting. China’s Shanghai Composite Index fell 2.9% to close at its lowest level since November 2014, despite a large cash injection by the People’s Bank of China.