Ian Copelin, Investment Director, my wealth comments<\/b> \u201cLast night in the US, the Federal Reserve\u2019s (Fed) Federal Open Market Committee (FOMC) concluded their eagerly awaited two-day meeting and left US interest rates unchanged.<\/p>\n
Contrary to recent Fed statements, which have intimated that they were intent on raising interest rates, last night\u2019s statement had a very dovish tone.<\/p>\n
In justifying their decision, Janet Yellen, the Federal Reserve Chair, surprisingly referred to the lack of inflation and the strong US dollar.\u00a0 However, falling commodity prices has meant that US inflation, hasn\u2019t been significantly above the central bank\u2019s 2% target since early 2012 (and is currently just 0.2%).\u00a0 Likewise the US dollar has been strengthening over the past 12 months (which makes exporting harder and has clearly slowed US economic growth).<\/p>\n
The decision therefore clearly indicates that the Fed was swayed by the recent volatility in financial markets and the slowdown in the Chinese economy.<\/p>\n
A 0.25% increase wouldn\u2019t have significantly altered the financial and business calculations of companies, but would have sent out a message that the 0-0.25% rate range introduced as an emergency 82 months ago wouldn’t be stuck at zero forever and proved that it could be raised.<\/p>\n
In addition, a US rate rise yesterday of 0.25% would have given the market some certainty as I believe that it would have been seen as a \u2018one-and-done\u2019 move for at least 12 months (I have said before that this is likely to be one of the loosest tightening cycles ever).<\/p>\n
I have never seen so much anxiety over an FOMC as yesterday, and although I am sure that all attention will now focus on the Fed\u2019s next meeting October and the following one in December, I believe a US interest rate rise is now next year\u2019s story.\u00a0 The fact that the Fed didn\u2019t raise interest rates yesterday, in my opinion means that there is no reason to think the Fed will increase rates in October or December \u2013 contrary to market expectations – as what will change in the next 3 months?\u00a0 Inflation still won\u2019t be a problem, while the uncertainty about the effect of China on the global economy won\u2019t be fully known let alone resolved.<\/p>\n
The US equity market was very volatile after the Fed\u2019s new found dovishness.\u00a0 Having been up around 60 points (+0.36%) before the announcement, the market swung several times between positive and negative territory, but finally ended the day down 65.21 points (-0.39%) at 16,674.74.\u00a0 Meanwhile, in the UK, the FTSE-100 is, as I write, down 45 points (0.73%) at 6,142.”<\/p>\n ","protected":false},"excerpt":{"rendered":"
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