The US Federal Reserve has held interest rates at the federal funds rate target of 0 to 0.25 per cent due to concerns over global growth.
It revealed that nine members of its Federal Open Market Committee (FOMC) voted to maintain the current target range at the meeting yesterday (September 17).
Only Jeffrey M Lacker voted against the action, meaning he was in favour of raising interest rates by 25 basis points.
The minutes of the meeting revealed the FOMC acknowledged that economic activity in the US continued to expand at “a moderate pace” but it noted that inflation remained below its longer run objective “partly reflecting declines in energy prices and in prices of non-energy imports”.
But its biggest concern appeared to be the recent volatility in global markets and China’s slowing growth.
The FOMC said: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”
It has promised to continue to monitor inflation developments “closely”.
Anna Stupnytska, global economist at Fidelity Worldwide Investment, said: “While the FOMC signalled continued confidence in the state of the US economy, it was made clear that, together with the low level of inflation, external risks and financial market developments became decisive factors against the hike this time.
“The recent tightening in US financial conditions, driven by the strong US dollar and the August sell-off, if sustained, could indeed ultimately result in slower US growth. The state of the Chinese economy and vulnerabilities of other emerging markets add to the overall uncertainty at this point.”
Chris Beauchamp, senior market analyst at IG Group, noted a “muted” reaction in markets.
He added: “No rate hike should be a reason for at least some gains in the stock market, especially if a December hike now looks less likely as well. But the concerns contained within the statement signal that there is little that can be taken as bullish for equities.”
But Felix Wintle, head of US equities at Neptune Investment Management, said a rate hike in December is still possible.
“Whilst the language accompanying the decision was dovish, we believe that rate rises may come quicker than the market expects. Over the last three rate rising cycles the Fed has consistently been more hawkish than they originally projected so, if they stay true to history, this is a distinct possibility.”
