US Federal Reserve Decides to Keep Interest Rates Steady

The prospect of higher rates in the USA has led to outflows from these countries, contributing to weakening currencies and higher bond yields that drive up borrowing costs.

“GDP is still growing at a 7 percent rate, and that is not too shabby”, said Carl B. Weinberg of High Frequency Economics in a report. August exports and auto sales shrank.

YDSTIE: The stock market reacted positively immediately after the Fed said it would not raise rates but lost ground later in the day.

“[The Fed’s decision not to move] corroborates the idea that growth is not coming through the way people were expecting”, said Johanna Kyrklund, head of multi asset investment at Schroder Investment Management, which has around £310bn ($A607.1bn) under management globally.

The Federal Reserve held interest rates steady on Thursday due to global headwinds that could slow the economy and keep inflation subdued as the central bank kept alive the possibility of a hike before the end of the year.

“I can’t give you a recipe for exactly what we’re looking to see”, she said.

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Fed officials are convinced labor market conditions have almost returned to normal.

“Capital outflow has really hit a watershed”, said Gary Kleiman, senior partner at Kleiman global Consultants, an emerging-market research provider. Europe is straining to avoid stagnation.

Although low rates have helped fuel years of rising share prices in the USA and around the world, markets drew little comfort from the decision.

However, U.S. monetary normalization is inevitable and most likely we will see a rate hike this year.

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. The key federal funds rate has been near zero since late 2008.

The dollar has risen 14.8 percent against a basket of currencies in the past year.

Investors did make significant bets on U.S. Treasuries and, for a change, precious metals. It also reduces inflationary pressures because foreign-made goods become cheaper.

A barrel of oil has more than halved in value to $44.07 over the past 12 months. Fed officials may be reluctant to act until they believe that oil prices have bottomed.

Amazon rose 2.2 per cent as it unveiled a US$50 tablet computer and other devices aimed at budget-conscious, gadget-hungry consumers. The Fed considers that level consistent with a “balanced” economy.

The Fed said that while the US job market is solid, there are reasons to be concerned about global economic growth.

The Fed doesn’t want to assume that all three of these economic measures will naturally improve. Mr Veru said he’s trimmed some of his stock positions recently and is waiting for earnings season to possibly buy more stocks.

Eighty economists in a recent Reuters poll were divided over whether the Fed would hike rates on Thursday, with 45 expecting it to remain on hold. However, beyond the roller-coaster ride in equity markets last month, there has been a steady stream of evidence signalling that a global economic slowdown is in train.