US Federal Reserve leaves benchmark interest rates unchanged

Asian stocks mostly rose Friday, perked by relief that the U.S. Federal Reserve held off on raising interest rates for the time being, but European markets faltered as some investors interpreted the Fed decision as a sign of economic weakness.

The Fed “was satisfied with the US economy, noting moderate growth in household spending and business fixed investment, along with further developments in housing markets”, said Ozlem Yaylaci, USA economist at IHS Global Insight in Lexington.

In a 9:1 vote by the Federal Open Market Committee, led by Fed chair Janet Yellen, the committee said it would not raise rates until it saw greater improvements in the labour market and gained confidence inflation would reach its 2% objective over the medium term. Unemployment in August fell to 5.1pc in the United States, its lowest level since April 2008.

Earlier Wednesday, the Organisation for Economic Cooperation and Development, the policy club of 34 advanced economies, said the strength of the USA economy “warrants an upward interest rate path”.

The recent drop in oil prices and the further appreciation of US dollar have put some downward pressure in the near-term on inflation, which means that it will take a bit more time for these transitory effects to fully dissipate, said Yellen.

By contrast, inflation remains subdued, with the Fed’s preferred indicator at just 0.3 percent.

Over the next month the market’s “fixation is going to shift” away from Fed lift-off talk, he says, and toward figuring out how the US and global economy is doing and what the outlook is for third-quarter corporate earnings. Low oil prices have also inhibited inflation. In June, 15 Fed officials had predicted that the first rate hike would occur this year.

At a news conference, Yellen declined to spell out what exactly would give the Fed enough confidence to raise the federal funds rate – the interest that banks charge each other – from near-zero.

The rate – which can affect lending rates worldwide – has been kept near zero for nine years in a bid to revive the U.S. economy. The Fed’s officials will also meet in December this year. “As they dissipate, I see inflation moving back up to our 2 percent inflation goal in the next two years”. Important emerging markets have seen significant outflows of capital, pressures on their exchange rates and concerns about their future performance.