US stocks open lower as Fed uncertainty weighs on markets

The dollar extended its losses against other major currencies on Friday, underscoring investors’ wariness over weakness in the global economy and markets given the Federal Reserve’s decision to keep interest rates unchanged. “Unequivocally, the Fed was on the cautious side of things”, said ANZ’s Sam Tuck. “October remains a possibility”. Ultra-low inflation also makes the inflation-adjusted cost of a loan more expensive. Since then, the economy has almost fully recovered even as pressures from overseas appear to have grown.

Inflation has fallen further since its last meeting in July, because of lower oil prices and a rising US dollar.

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 USA and global economy is doing and what the outlook is for third-quarter corporate earnings.

Brenda Kelly, head analyst at London Capital Group, said: “Markets have taken cues from the USA , but uncertainty prevails and choppiness is the only certain result”. Britain’s FTSE 100 was 0.9 percent lower. It now foresees the economy expanding at just a 2.3 percent pace next year, down from June’s projection of 2.5 percent.

In New York, the Dow Jones industrial average sank 217 points (1.3 per cent) while the S&P 500 dropped 21.5 points (1.1 per cent). If rates remain at that level, it would limit the Fed’s ability to respond to economic downturns.

The vote on the policy statement was a sign of how China’s economic slowdown and market slide left Fed officials unnerved about the state of the world economy. She has stressed that any rate increases will likely be modest and gradual.

Both he and Boston College economics professor Robert Murphy said they anticipate a December rate hike, since the Fed “doesn’t want to surprise the markets”, Yaylaci said, “especially in the midst of current financial volatility”.

Yellen, however, maintains that most policymakers at the Fed believe rates will rise this year. The Fed has a mandate to stabilize price levels, which it has defined as 2 percent annual inflation.

The dollar fell sharply against a basket of currencies after the release of the statement.

The committee repeated that it will raise rates when it has seen “some further improvement in the labour market and is reasonably confident that inflation will move back to its 2pc objective over the medium term”. Its stock fell 83 cents, or 1 percent, to $84.45.

The Fed also forecast inflation would creep only slowly toward its 2 percent target even as unemployment dips lower than previously expected.

Yet the Fed’s influence on many consumer and business rates is only indirect.