Fed Holds Rate USD Weaker Across the Board

The Federal Open Market Committee (FOMC) kept the Fed funds rate to be kept unchanged. The mention of “monitoring developments abroad” hints at a concern with global conditions such as the Chinese stock market sell off played a significant part in the central bank holding rates.

Dots suggest 7 officials see one hike, 5 see two hikes and only 1 Fed member sees three hikes before the end of the year.

The Fed remains confident on inflation as evidenced by the economic projections.

Federal Reserve officials left interest rates unchanged, opting to delay an increase amid stubbornly low inflation, an uncertain outlook for global growth and recent financial-market turmoil.

“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 Federal Open Market Committee said in a statement Thursday in Washington.
In holding their benchmark federal funds rate at zero to 0.25 percent, policy makers showed they are still not convinced inflation will move gradually back to their 2 percent target, despite continued gains in the labor market. Unemployment in August fell to 5.1 percent, its lowest level since April 2008.

“On balance, labor market indicators show that underutilization of labor resources has diminished since early this year,” officials said.
Richmond Fed President Jeffrey Lacker dissented, saying he preferred to raise the target rate by 0.25 percentage point.

via Bloomberg

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza