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Fed rates unchanged; fears of monetary easing in EU, Japan and China, and inflation still below 2%

Thursday, October 29th 2015 - 07:32 UTC
Full article 3 comments
Most Fed policymakers have said they expect to raise rates in 2015, but two broke ranks with Fed Chair Janet Yellen this month Most Fed policymakers have said they expect to raise rates in 2015, but two broke ranks with Fed Chair Janet Yellen this month
“The committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced,” the Fed said in its statement. “The committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced,” the Fed said in its statement.
Richmond Fed President Jeffrey Lacker dissented on Wednesday for the second consecutive meeting. Richmond Fed President Jeffrey Lacker dissented on Wednesday for the second consecutive meeting.
Fears of monetary policy easing impact: when the European Central Bank hinted last week at more bond-buying stimulus to come, the dollar rose 3%. Fears of monetary policy easing impact: when the European Central Bank hinted last week at more bond-buying stimulus to come, the dollar rose 3%.

The US Federal Reserve kept interest rates unchanged on Wednesday, but downplayed global economic headwinds and left the door open to tightening monetary policy at its next meeting in December.

 Following a two-day policy meeting, the central bank said it was still monitoring economic and financial developments abroad, but did not repeat that global risks would have a likely impact on the US economy, as it warned at its last meeting in September.

That omission marked a softening in tone compared to the Fed's statement last month.

The Fed's policy-setting committee also noted that US job growth had slowed and the unemployment rate had held steady. It repeated in its statement that “underutilization of labor resources has diminished.”

“The committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced,” the Fed said in its statement. It added that the US economy has been expanding at a moderate pace.

Most Fed policymakers have said they expect to raise rates in 2015, but two broke ranks with Fed Chair Janet Yellen this month, questioning her view that labor market tightness will fuel inflation and overheat the economy.

They urged caution rather than a rate increase, arguing that a weakening global economy could sap US economic growth and keep inflation too low.

The Fed has struggled to convince skeptical investors that a rate hike is imminent. Before Wednesday's meeting, financial markets saw virtually no chance it would raise rates this week and only a 34% chance of such a move in December. A rate hike was generally not expected until March.

The main stumbling block is that U.S. economic growth has been generally tepid and inflation low even though unemployment has fallen.

Compounding the situation, central banks from the euro zone to China are easing monetary policy, keeping upward pressure on the US dollar. That hurts American exporters and acts as a brake on inflation.

In its statement, the Fed repeated it wants to be “reasonably confident” that low inflation will rise to its 2% target.

The Fed has two months of data to parse, including Thursday's third-quarter GDP estimate as well as employment reports for October and November, before deciding if the economy is strong enough to withstand its first rate hike since 2006.

It will also get a chance to see how monetary policy easing in Europe, Japan and China plays out in financial markets. When the European Central Bank hinted last week at more bond-buying stimulus to come, the dollar rose 3%.

Richmond Fed President Jeffrey Lacker dissented on Wednesday for the second consecutive meeting.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.

Categories: Economy, Politics, United States.

Top Comments

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  • ChrisR

    Hypocritical stance about QE when The Fed has been AND IS STILL throwing Dollars around like confetti ever since the US ignited world wide financial disaster took hold.

    In effect The Fed acts as the world’s central bank, but sets monetary policy only in its own interest and seemingly wants to say “fuck you” to the rest of the world.

    “The dollar is our currency, but it's your problem.” This is what US Treasury Secretary John Connally said to the Rome G-10 meeting in November, 1971. Nixon had just ended the dollar’s convertibility into gold and shifted the international monetary system into the worthless paper based global floating exchange rate regime that we suffer under today.

    So the monetary system of the entire world comes down to a small bunch of self-interested yanks led by a silver haired woman printing Dollars like there is no tomorrow: that's why I have no confidence in it.

    It is clear that The Fed will only change rates when it's customers (the big banks and big business) TELL it to do so.

    Oct 29th, 2015 - 07:27 pm 0
  • Hepatia

    http://en.mercopress.com/2015/10/29/fed-rates-unchanged-fears-of-monetary-easing-in-eu-japan-and-china-and-inflation-still-below-2#comment418626: If you Brits don't like it then leave. Don't let the door hit you on your ass as you go.

    Oct 30th, 2015 - 02:11 am 0
  • ChrisR

    @ 2 Hepalong Cassidy (the original was a fake cowboy, just like you are a fake Yank.

    Oh dear, showing your 'I'm a Yank' face today are we? Pity it's not true.

    Unlike you, I know my arse from my elbow and where I live on the planet.

    You don't really understand my comment, do you?

    You have no idea about the Bretton Woods thing otherwise you would realise I am telling the truth: it's history you foolish woman / transgender / whatever you are.

    Oct 30th, 2015 - 04:10 pm 0
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