Regions

Fed Keeps Benchmark Rates In Place, Hints For Further Hike In March

January 28
7:18 AM 2016

The Federal Reserve Bank, the central banking authority of the US, has announced keeping interest rates unchanged on Wednesday. The decision has been made public through a statement issued after the meeting of its policy making committee enduring for two days.

The decision appears to be widely anticipated since US as well as world equities have raised concerns over abrupt global slowdown. The slowdown is feared to drag down the US economic growth. However, Fed is closely monitoring the global economic and financial developments and remains steady in adopting tighten monetary policy for this year, reports Reuters citing the Fed statement as the source.

The Fed hasn't raised its benchmark rate at this meeting after increasing rates in December for the first time since the financial crisis. But the policy making officials assumes a second increase during their next meeting in March, forecasts The New York Times.

Fresh worries about the health of the Chinese economy and the slump in oil prices have triggered a major selloff in U.S. equities. Stocks have been witnessed to rally after the Fed statement but finally lost ground.

The S&P 500 index SPX, -1.09% has recently been down 25 points to 1,879. Traders betting on rate hikes, using fed funds futures contracts, have projected only a 38% chance of a rate hike in March, reports MarketWatch.

The Fed has raised its key overnight lending rate by a quarter points ignoring economic turmoil in China, Japan and Europe. Moreover, it has issued upbeat economic forecasts suggesting four additional rate hikes by this year.

Following the Fed statement released on Wednesday, a Reuters' poll result predicts for only three rate hikes by the end of 2016. The poll verdict appears in line with earlier predictions revealed in January.

Quick rise in prices may lead to higher wages. But due to lower inflation, the pressure is now flowing to the opposite direction.  A regular consumer survey conducted by the Federal Reserve Bank of New York has found that the inflation has declined to 2.8 percent from 3.3 percent over the last two years.

U.S. exports have taken a hit last year, largely due to the impact of a strong dollar. Furthermore, consumer spending has been accelerated and eventually overall employment surged by 292,000 jobs in December. A range of recent labor market indicators, including "strong" job gains have pointed to some additional firming in the job market.

Economies of China, Japan and other European countries have been reported to tatter with the drastic fall in oil prices. Due to tightened monetary policy and stronger Dollar outlooks, US economy seems to remain stable. Export has been increased satisfactorily and new job opportunity has touched the desired level. Moreover, inflation remains low compared to predictions. All these factors have contributed in deciding steady interests rates and keep the tightened monetary policy to remain in force.

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