Fed uncertainty weighs on markets after rates kept on hold

Mike van Dulken, head of research at Accendo Markets, said investors are feeling uneasy after the Fed highlighted “concerns about external factors such as China, market volatility and deflation derailing a [U.S.] recovery”.

“Second, they have revised down their growth and inflation expectations, a signal that they are concerned that all is not well with the United States economy either”. There are no surprises there. Yellen said that October is a “live meeting” that could produce a rate hike, but most Fed watchers think she will want a chance to soothe investors if there is a market tantrum. Many African countries have yet to recover from the crash of the Chinese stock market and an increase in the Fed reserve rate will do greater harm.

The dovish comments may have added to the confusion in the marketplace because now investors have to decide if the language in the statement means the Fed is still on track to raise rates in October, December or not at all in 2015. “Certainly, the weaker dollar should be a short-term positive for the metal and if equity markets start another leg lower on account of renewed concerns the Fed now has about global growth prospects, gold could marshal yet another reason to rally”.

The Fed is holding the federal funds rate near zero, which is holding all interest rates down.

“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 committee said in a statement on Thursday.

The central bank’s decision, and the way its deliberations were framed, were interpreted by many Fed watchers as a sign that the central bank might not raise rates this year.

Two of Wall Street’s biggest names are voicing different views about the Federal Reserve’s still-pending decision on raising interest rates for the first time in nine years.

The unemployment rate dipped to 5.1 percent last month, and Williams said he expects the USA to reach full employment by the end of this year or next year.

“China was an influence in this meeting, whereas in the past that would have been much less important”, said Mr Tai Hui, chief Asia market strategist at JPMorgan Asset Management in Hong Kong. Richmond Fed President Jeffrey Lacker disagreed with the decision and dissented. But the situation overseas, as well as the increasing value of the US dollar, ultimately led the bank to leave the rates unchanged at its September meeting.