Federal Reserve leaves interest rates unchanged

While many Fed officials have signalled a desire to raise rates before year’s end, tepid economic reports in recent weeks had led a few analysts to predict no hike until 2016.

Michael Feroli, an economist at JPMorgan Chase and a former Fed staffer, said, “The Fed sent its clearest signal yet that, pending decent data, it has the December meeting in its sights for the first rate hike”. The S&P 500, which was up 0.8 percent before the statement was released, was up just 0.2 percent shortly afterward. While the FOMC noted that household spending and business fixed investment had increased moderately over the previous two months, it expressed concern that a slowdown in the global economy had placed significant downward pressure on inflation.

“Inflation is not going to happen in the next six months to the Fed’s satisfaction”, he said.

The FOMC has remained tight lipped about its plans, noting that it will continue to focus on employment and inflation rates and gauge whether those continue to see improvements.

But the panel argued that anyway the jobs market has been tightening “since early this year”. Spot gold, stronger initially due to a retreat in the dollar, fell 0.5 per cent to its lowest since October 9 at $1,150.45 an ounce.

The Reserve Bank of New Zealand left the official cash rate unchanged at 2.75% as expected, but jawboned the currency lower by stating that lower interest rates would be required if the exchange rate remains high.

Rather than saying, as before, that global developments “may restrain (US) economic activity somewhat”, the committee simply said it is “monitoring global economic and financial developments”. Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, voted to raise rates, as he did in September. Asian stocks slipped on Wednesday, taking cues from an overnight decline on Wall Street, while the dollar index held steady as a wait-and-see mood prevailed ahead of a policy statement from the Fed.

“Despite the fact that many people see raising interest rates as a positive sign for the economy, the data simply doesn’t support the hawks right now”, said Bill Waite, managing director at the New York-based economics consultancy Semnia.