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No Fed Rate Hike Thursday; Stock Markets Unchanged

When the U.S. Federal Reserve speaks, the world listens. Given that the Fed has consistently said no change to the current zero interest rates for several years now, everybody was listening particularly closely this time around. However, the FOMC has decided there will be no Fed rate hike right now.

The IMF and a few other global organizations has asked the Fed to hold off on raising interest rates for a while longer as they have concerns it will lead to negative consequences for financial markets, especially in emerging nations. The Fed had honored the request so far, and with its decision Thursday has signaled it will continue to do so for at least another month.

Fed Rate Hike

Markets unchanged on no Fed rate hike

Stock markets were apparently happy to hear the news, as the DJIA immediately ran up 100 points. Within a few minutes, however, the index was back to red, but is up up more than 50 points as of 2:15 PM central.

Fed Rate Hike

Statement from Fed is very similar to last time

The statement from the Federal Reserve explaining its decision to not boost interest rates was remarkably similar to the statement from the last FOMC meeting. Of note,the FOMC statement noted economic activity is relatively weak here in the U.S., and inflation remains stubbornly below its target. “Secular stagnation” was specifically cited as a concern in the statement.

Analysts also commented that the lack of a Fed rate hike today means it is clear that the FOMC members are concerned about the impact of a Fed rate hike on international markets.

Yahoo Finance Editor-in-Chief Andy Serwer said he believes that we would have seen an interest rate hike if Chinese stock markets had not melted down earlier this summer.

Austan Goolsbee, former Chairman of the White House Council of Economic Advisors, commented that he feels the Fed made the right decision, and that the FOMC members were focused on the relatively weak stae of the U.S. economy. Goolsbee also said that the Fed was clearly working to avoid anything like last year’s “taper tantrum.”

Fed Rate Hike

Of note, voting for the FOMC monetary policy action in September 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. The only member who voted against the decision was Jeffrey M. Lacker, who went on the record saying he preferred raising the federal funds rate by 25 basis points.

Excerpts from September Federal Reserve statement

The introductory paragraph of the statement from the September FOMC meeting offered some insights into the decision against a Fed rate hike: “…economic activity is expanding at a moderate pace. Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further; however, net exports have been soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, labor market indicators show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports.”

The concluding paragraph of the statement from Thursday’s meeting did not suggest much more urgency than the statement from the previous 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 percent. 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.”