The U.S. Fed raised concerns concerning the U.S. economy’s growth late last year and said it is “closely monitoring” the turmoil in global markets because it chose to leave its benchmark rate of interest unchanged Wednesday.
U.S. Federal Reserve holds rates: Browse the official statement
This was the very first meeting for the central bank since Dec. 16, when committee members voted unanimously to boost the important thing rate by 25 basis points – the very first increase since 2006. Global stock markets have since witnessed a rapid selloff, using the S&P 500 falling off more than nine percent and oil prices crashing an additional 15 percent.
Some economists had anticipated the Fed would have a more cautious tone following the market turmoil. On Wednesday, the tone did change to acknowledge growth concerns, but didn’t appear to indicate the Fed would change its stance on moving rates higher this year.
“While the statement was a little dovish in respect towards the international outlook and what that could mean for U.S. growth and inflation going forward, the doorway was definitely not closed on another hike in March,” said Andrew Grantham, economist at CIBC World Markets.
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Wednesday’s decision to face pat on rates was unanimous of all members of the Federal Open Market Committee. They noted that despite global risks, some economic indicators, including consumer spending, the labour market and housing, all still show healthy improvement.
“Household spending and business fixed investment happen to be increasing at moderate rates recently, and the housing sector has improved further,” the Fed said in the statement.
The labour market continues to be one of the few bright spots for the U.S. economy in recent months. This month’s jobs report shows that the country added 2.Sixty five million new positions in 2015, following the development of 2.95 million jobs in 2014. The two-year period has been the strongest for new American jobs because the late 1990s.
The gains have pushed the unemployment rate down to five per cent, halving the ten percent peak observed in 2009.
But the Fed will need to balance that against what appears to be a deteriorating global economy this season. The current stock exchange selloff, for example, risks undermining American consumer confidence as billions in wealth have evaporated. The S&P 500 is currently on track to record its second-worst January performance in the past 40 years.
China’s slowing economy is also a problem, one which economists are concerned could tilt the worldwide economy into recession. The country recorded its weakest economic growth in Twenty five years in 2015. While economists have debated how much which will change up the U.S. economy, the Fed noted Wednesday that external demand is seeing pressure, though they blamed the effectiveness of the dollar.
Michael Gregory, deputy chief economist at BMO Capital Markets, said that the Fed might be more worried than the statement suggests. The Fed just replaced four of their voting members as part of an annual rotation, which brought in more hawkish voters for example Might Fed President Esther George, who has consistently favoured raising the interest rate and it has said the Fed missed opportunities in the past two years to do it.
“If the hawks and inflation watchers have become a little more concerned about the downside risks, perhaps all of us should,” said Gregory.
