Federal Reserve interest rate decision: Fed leaves US interest rate unchanged

 
Clara Guibourg
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No hike today (Source: Getty)

The Federal Reserve decided to keep US interest rates unchanged today, confirming analysts’ suspicions that recent market turmoil would stay the bank's hand.

The shaky global economy, recently dragged by turmoil in China after Black Monday, lay behind the Fed's decision to hold its fire and keep the interest rate at its zero to a quarter point target, the bank said in a statement:

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.

At a press conference about the rate decision, Fed chairwoman Janet Yellen said:

We are asking ourselves how economic and financial developments in the global economy affect the risk to our outlook for our two goals, and whether or not they create unbalanced risks that we want to wait to resolve.

One Fed official even voted to push the near-zero rate into negative territory, but Yellen said during the press conference this was never seriously considered.

Despite holding rates steady, the central bank has forecast that a hike is coming before the year is out, after almost seven years near zero. Since the bank is meeting only twice more this year, this means an increase would come in either October or December.

Stephanie Sutton, investment director of US equities at Fidelity, said that despite the Fed's decision, a hike is likely to come by December:

Normalisation appears increasingly imminent, with a first rate rise now likely in December. It is probably warranted with the US economy expanding and unemployment levels now in close proximity to the theoretical "natural rate".

A move towards interest rate normalisation would begin to exert greater pressure on companies to employ capital discipline and an increasingly discriminating investment approach

Following the bank's decision, the dollar dipped by nearly one per cent against the euro. Meanwhile US Treasury yields rallied, with the 10-year yield down from an open at 2.29 per cent to 2.22 at pixel time.

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