In a decision that seems to have been
finely balanced, the US Fed decided yesterday not to raise interest rates on
this occasion. Although not resulting in a move on rates, yesterday’s was at least
the first FOMC meeting in many years when the fact that rates were kept on hold
was something that constituted news. Up to now in modern times all commentators
would be writing the words “as expected” this morning.
In her press conference, Ms. Yellen
contradicted the previous statements of FOMC committee members, including
herself, when she included volatile financial markets as well as the downside
risk in Chinese economic performance as reasons to explain the reluctance to
raise core rates in the US. While officially an emerging market (EM) economy,
China does carry significant clout on the global scene. Inflation, of course, is still a bugbear and
the Chair of the Fed identified energy prices as the driver here. She was more
upbeat on US growth and on the employment record, mentioning that anything that
the Fed can do to improve employment will also assist with rectifying perceived
inequality in society, a topic that she has dealt with previously.
Market
attention shifts to next two 2015 FOMC meetings
There is still an idea out there that
rates will begin to rise this year. There are two meetings left in 2015 in the
Federal Reserve calendar, October and December. The October meeting is not
scheduled to be accompanied by a press briefing, and it is believed by market
participants that rates can only be moved on those occasions where a press
conference follows the meeting. Ms Yellen dealt with that yesterday by saying
that, in the event that they decide to raise rates in October, they will call a
press briefing and use established practices to make sure that all reporters present
can participate.
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