Fed keeps rates unchanged but hints at future hikes

Janet-Yellen-Fed-700x450.jpgThe Federal Reserve has kept interest rates unchanged at 0.5 per cent but gave hints it might move on other hikes as it is “closely monitoring global economic and financial developments”.

In December the US central bank moved rates up from the target rate of between 0 and 0.25 per cent, which it had been at since November 2008.

In its latest monthly meeting, the Federal Open Market Committee said: “The committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.”

However, the central bank said its future moves will only be gradual and expects the funds rate to remain below expected levels “for some time”.

But it said “the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data”.

AJ Bell investment director Russ Mould says market indicators gave the Federal Reserve “little choice” but to leave interest rates unchanged.

He says: “The combination of sinking stock markets, sagging sentiment among manufacturers and signs of distress in the junk bond market means the market may soon be demanding the US central bank reduces borrowing costs instead of hiking them.”

Ian Kernohan, economist at Royal London Asset Management, says the Fed “wants to keep its options open” and wait for the global economic outlook to improve.

He says: “Our base case remains that the Fed will lift rates again this year, but by less than the four hikes signalled in their most recent ‘dot plot’.”