US Federal Reserve keeps interest rate unchanged

US Federal Reserve keeps interest rate unchanged

Thursday, September 17, 2015 11:02 pm


Janet Yellen, US Federal Reserve chair

Janet Yellen, US Federal Reserve chair

US Federal Reserve has exploded speculations of an interest rate hike, choosing instead to maintain the status quo since 2008.

Fed Chairman Janet Yellen on Thursday announced that rates would remain at record lows.

The Federal Reserve is keeping U.S. interest rates at record lows in the face of threats from a weak global economy, persistently low inflation and unstable financial markets.

While the U.S. job market is solid, global pressures may “restrain economic activity” and further drag down already low inflation, the Fed said Thursday in a statement after ending a policy meeting.

Signs of a sharp slowdown in China and other emerging economies have intensified fear among investors about the U.S. and global economy. And low oil prices and a high-priced dollar have kept inflation undesirably low.

The Fed’s announcement ended weeks of speculation about whether it might finally be ready to raise rates from the record lows it first set at the depths of the 2008 financial crisis. The ultra-low loan rates the Fed engineered were intended to help the economy recover from the Great Recession. Since then, the economy has nearly fully recovered even as pressures from abroad appear to have grown.

At a news conference, Fed Chair Janet Yellen said a rate hike was still likely this year. A majority of Fed officials on the committee that sets the federal funds rate – which controls the interest that banks charge each other – still foresee higher rates before next year. The Fed will meet next in October and then in December.

“Every (Fed) meeting is a live meeting,” Yellen said. “October, it remains a possibility.”

In their statement, Fed officials stressed that they were “monitoring developments abroad” and that the global slowdown might restrain U.S. economic growth and inflation levels. This appeared to be a reference to China, the world’s second-largest economy.

China’s economy has slowed for four straight years – from 10.6 percent in 2010 to 7.4 percent last year. The International Monetary Fund expects the Chinese economy to grow just 6.8 percent this year, slowest since 1990.

The Fed has kept its key short-term rate near zero since 2008. A higher Fed rate would eventually send rates up on many consumer and business loans.

Even after the first increase off of zero, Fed interest rate policy will be “highly accommodative for quite some time,” Yellen stressed.

Wall Street’s early reaction to the Fed’s decision, which investors had widely expected, was muted. U.S. stock indexes were up slightly and roughly where they were before the Fed released its policy statement at 2 p.m. Eastern time.

Bond investors seemed cheered by the Fed’s decision to keep rates ultra-low. The yield on the 10-year Treasury note fell to 2.23 percent from 2.30 percent late Wednesday. Bond prices tend to rise and yields tend to fall when investors expect subdued inflation, low rates and modest economic growth.

*Reported by AP

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