The US Federal Reserve has decided against rising interest rates, choosing instead to keep the rates between 0.25% and 0.5%.
Fed Decides Not To Raise US Interest Rates
In a decision to keep interests rates at an ultra-low level, the Federal Reserve said that the short-term risks to the economy have reduced even though the inflation rate remains lower than the Fed’s target.
Even then, there are still expectations that the Fed will increase interest rates two times in the course of this year, with investors anticipating a hike in autumn.
The Federal Open Market Committee (FOMC) said, in statement, that spending at the household level was showing strong growth and the unemployment rate had reduced, according to data for the last two month.
So far, the US central bank has been hesitant to raise interest rates in spite of inflation being recorded at 1.6%, lower than its 2% target.
The FOMC has attributed the low inflation to the low energy prices.
While investors were not anticipating that the Fed would defer raising interest rates all together, they were looking for signs of a timeline for rate hikes.
According to Kathy Jones, a fixed-income strategist at Charles Schwab, the statement by the Fed had a ‘reasonably upbeat tone’ and was not significantly different from the last time.
The central bank has held back raising interest rates as a result of the uncertainty in the global market resulting from the Brexit vote.
In the past, the Fed has decided not to raise rates due to uncertainty in China’s domestic market and the slowdown in Europe’s economic growth.
Global markets uncertainty
Prior to the Brexit vote, Janet Yellen, the Federal Reserve chair indicated that if the UK voted to exit the European Union, the move would have dire implications for the US economy.
So far, US markets have remained solid in the face of the shocks brought on by the UK’s decision to leave the EU, an indication that the economy has had some moderate improvements.
Esther George, chair of the Kansas City Federal Reserve voted severally to raise interest rates, saying that the Fed was playing it too safe.
A common anticipation among analysts is that the Fed will indeed raise the rates in this year’s September meeting.