It is not really the stuff of high drama, not an economic cliff-hanger although the reality of an interest rate hike will have a knock-on effect in markets and economies around the world – eventually. At some stage, American interest rates must move upwards from their historic low level. Many analysts had expected that process to be gradual and to commence yesterday at the conclusion of the Federal Reserve’s two-day September meeting, but the decision taken was that interest rates would remain on hold for a while longer. Most analysts have been expecting the gradual creep towards normality to have started anything up to a year ago when the Federal Reserve concluded “the Taper” winding down it’s quantitative asset purchasing scheme. The fact that analysts remain disappointed points to the perceived fragility of the US and global recoveries which are still not judged to be strong enough to withstand the cost of “dearer borrowing”.
The Open Markets Committee of the Federal Reserve voted by 9 to 1 in favour of leaving the interest rate untouched at between 0 and 0.25% where it has stood since December 2008.
The Federal Reserve cited external factors as playing an influence on their decision in a post meeting statement, but, of course, the Fed’s mandate relates to ensuring low levels of unemployment and low, stable inflation within the domestic US economy:
"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term. 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”.
Remarking on recent developments in China, the Fed Chairwoman, Janet Yellen, said:
"We've long expected to see some slowing in Chinese growth over time as they rebalance their economy. There are no surprises there. The question is whether or not there will be a risk of a more abrupt slowdown than most analysts expect”.
There will be two further meetings of the Federal Reserve’s Open Market Committee this year, next month and in December, so fevered speculation will be on hold for a while longer..