Fed rates kept on hold by Brexit bugbears and May's disappointing jobs report

Billy Bambrough
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Fed Chair Janet Yellen Gives Speech On Financial Stability At IMF
Fed chair Janet Yellen will be speaking twice next week and markets will be paying close attention (Source: Getty)

The US Federal Reserve has voted to keep its interest rates on hold at its monthly meeting, inline with market expectations.

There had previously been expectations that the Fed would hike rates for the second time in a decade this month though recently sentiment has soured.

The US central bank has held the target range for the federal funds rate at 0.25 per cent to 0.5 per cent, where it has been since December last year.

It did however signal two rate increases before the end of the year, provided the economy holds.

However, six members or more than half of the 10 voting members, at the June session said they anticipate only one rate hike this year, up from just one in April.

Read more: Is it too late to normalise monetary policy?

In its statement the Fed said:

The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to two per cent inflation."

On Wall Street stocks held onto their earlier gains following the announcement.

Last month the Fed said if the data held up a rise in June was "likely", however a disappointing monthly jobs report for May all but killed the prospect.

Ongoing market fluctuations caused by next week's UK European Union referendum has also sapped appetite for a hike. However, unlike in July's report the Brexit referendum was not mentioned in the Fed's statement.

In Yellen's press conference she said that the increased risk of Brexit was "one of the factors" that went into its decision.

In its statement the Fed again said it was continuing to “closely monitor inflation indicators and global economic and financial developments.”

Dennis de Jong, managing director at UFX, said:

There are no surprises here from the Fed, who would have needed some pretty strong counter-arguments to waylay concerns following dismal jobs data in May.

With inflation expectations on the wane, and Fed chair Janet Yellen openly stating she’ll only raise once the data is strong enough to support it, it was near-certainty borrowing rates would stay the same.

Nancy Curtin, chief investment officer at Close Brothers Asset Management, said:

A rate rise in June has been off the cards for some time. The Fed’s hands have been tied by a combination of weak jobs data in May, triggering concerns about US economic health, and the fear of exacerbating market volatility in the approach of the EU referendum.

Without signalling exactly when a rise will be, the Fed has been keen to move market expectations about both the number and pace of rate hikes over the next few years.

Read more: Brexit fears send sterling to two month lows

Once upon a time - during the last tightening cycle - the Fed hiked rates at pretty much every meeting

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