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Fed leaves rates unchanged in US
18
Sep '15
The US Federal Reserve has decided not to raise interest rates, keeping them at the same level they have been at since December 2008. Rates have been stuck near zero since the financial crisis in December 2008.

Despite America's unemployment rate moving in the right direction, the housing market getting stronger and business confidence soaring, the committee members still decided the US economy wasn't ready yet for higher rates. The Fed made it clear that concerns over the strength of the global economy had influenced its decision not to lift rates.

Signs of weaker growth and stock market turmoil in China have led to fears among investors about US economic growth. "We've long expected to see some slowing in Chinese growth over time as they rebalance their economy. There are no surprises there. The question is whether or not there will be a risk of a more abrupt slowdown than most analysts expect," Fed chairperson Janet Yellen said at a press conference.

The Fed's long-term policy is to keep interest rates low until employment levels improve further and the main US inflation rate approaches its 2 per cent target.

“In light of the heightened uncertainties abroad … the committee judged it appropriate to wait for more evidence … to bolster its confidence that inflation would rise to 2pc in the medium term,” Yellen said.

Inflation currently remains subdued in the US, kept down by cheaper oil and a strong dollar.

The central bank said that it still wanted to see more improvement in the labour market, even though recent data showed that the unemployment rate for August was 5.1 per cent, the lowest since 2008. The Fed also wants to be "reasonably confident" that inflation will increase.

"The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run," it said.

When the Federal Reserve does start to raise rates, policymakers have forecast slow increases.

These would probably be just 0.25 of a percentage point this year, followed by one percentage point in 2016 and then a further 1.25 percentage point increase in 2017.

Although they didn't raise rates now, the majority of Fed committee members believe there will be a rate hike in 2015, according to its economic projections. The committee has two remaining meetings this year in October and December. (SH)

Fibre2Fashion News Desk – India


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