Federal Reserve sticks to near zero interest rate

“For emerging-market central bankers, the Fed has given them some much-needed breathing room”, Jonathan Lewis, a principal at New York-based Samson Capital Advisors LLC, said.

But trade-reliant Asian economies are likely to remain under pressure as China’s economy slows. However, its forecasts for GDP growth in 2016 and 2017 were downgraded.

One key guide to policy, the strength of the labor market, had improved since the July meeting, it said, with slack diminishing since earlier this year.

But this week, in some camps, there was a strong view that it would be better to get on with the first quarter-point rate increase in nine years, given the overall strong health of the U.S. economy.

On the other hand, the Fed has made it abundantly clear that the current policy of super-low rates is an unusual measure meant to shore up the economy and will eventually be dismantled.

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

The FTSE 100 fell 1.34%, Frankfurt’s Dax plunged 3.06%, and in Paris the Cac 40 dropped 2.56%.

USA government bonds reflected the caution with their prices rising and ten-year treasury yields falling towards 2.2%.

Analysts said the Fed officials were concerned about the unrealised target of 2-percent inflation, and they may wait until the next year to raise interest rates. Meanwhile, the GDT average winning price jumped 16.5 percent at this week’s dairy auction, the biggest increase in five years, and whole milk powder soared about 21 percent.

“More supportive is the perception that the Fed seems to have lost a little confidence itself in the rate hike cycle”, he added.

In recent months Fed officials like board member Jerome Powell and Atlanta Fed President Dennis Lockhart had publicly endorsed a September rate hike, forming a near majority along with longstanding inflation hawks like Lacker.

Following the Fed’s decision on Thursday, the dollar slumped to a three-week low against a basket of major currencies, supporting gold prices.

Expectations for US interest rates are likely to continue to drive stock markets and the dollar in the final months of the year.

Ms Yellen was asked in the Fed’s news conference if protesters outside the meeting demanding low rates – and outside their last meeting at Jackson Hole – had affected the decision to leave interest rates unchanged.

Financial markets had been zigzagging with anxiety 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.