Fed insists on keeping rates unchanged
September 26, 2016 6:09 amVideo
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Federal Reserve (Fed) kept interest rates unchanged but hinted that an increase is likely to take place during the year.
The Federal Open Market Committee (FOMC) meeting took place on Wednesday and decided not to proceed with an interest rate increase. It was stated that for now the Fed prefers not to proceed with a rate hike until there is additional evidence of economic strengthening towards its targets. The interest rate is currently 0.50%. Three out of ten FOMC members voted against leaving interest rates unchanged and voiced their opinion for an immediate increase. In particular, Esther George of the Kansas City Fed, Loretta Mester of the Cleveland Fed, and Eric Rosengren of the Boston Fed voted for a 0.25% increase.
During her press conference that followed the interest rate decision, Fed Chairwoman Janet Yellen said that the FOMC members are satisfied with the general state of the economy. However the decision to leave rates unchanged was taken in hope of additional improvement of both unemployment and inflation levels as the latter remains below the 2% target.
The Fed has been changing its mind during the year on the likelihood of increasing interest rates given that the markets have been particularly volatile following the December increase. Most of the financial uncertainty has been caused by overseas events, including the changes of foreign exchange policies by China as well as the UK’s decision to exit the EU.
The particularly charged atmosphere around the Fed’s decision has been linked with the latest political developments in the US. The nation’s presidential election is only two months away and the Republican candidate Donald Trump has criticised the Fed for not increasing interest rates by saying that the decision has been influenced by current President Barack Obama. However, Ms Yellen responded to the criticism by saying that the Fed is not influenced by politics when deciding on monetary policies.
During recent months the Fed has voiced its concerns in relation to the economic uncertainty that surrounded the UK referendum and its result. This time however, there were no such comments as the main reason for holding interest rates unchanged was the intention to leave room for further improvement of the labour market.
The EUR/USD rate moved with notable increases following Wednesday’s interest rate decision. On the day of the data release, the rate increased by 0.3%, while during Thursday and Friday there were more gains by an additional 0.3%. On a weekly basis, the world’s most popular currency moved upwards by 0.6% to 1.12238.
Ms Yellen predicted that the next FOMC meeting during November will be an interesting one given that it will take place just days before the general election, and in which there could be decisions on monetary policy changes. She also said that the Fed has not noticed any reduction in corporate investment as a result of the uncertainty surrounding the general election. Would you predict that to change as we move closer to the election period?
http://www.forbes.com/sites/ralphjennings/2016/09/22/u-s-interest-rate-inaction-will-impact-these-3-asian-countries/#71c0852f3071
http://www.wsj.com/articles/dollar-retreats-amid-doubts-fed-will-raise-interest-rates-in-2016-1474554599
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