US leaves key interest rates unchanged

[webfact]

Fed leaves key interest rate unchanged, citing low inflation
By MARTIN CRUTSINGER

WASHINGTON (AP) — The Federal Reserve ended weeks of speculation Thursday by keeping U.S. interest rates at record lows in the face of threats from a weak global economy, persistently low inflation and unstable financial markets.

But at a news conference after a Fed policy meeting, Chair Janet Yellen said a rate hike was still likely this year. A majority of Fed officials on the committee that sets the federal funds rate — which controls the interest that banks charge each other — foresee higher rates before next year. The Fed will next meet in October and then in December.

"Every (Fed) meeting is a live meeting," Yellen said. "October, it remains a possibility."

In maintaining its policy, the Fed is keeping its benchmark short-term rate near zero, where it's been since the depths of the 2008 financial crisis. A higher Fed rate would eventually send rates up on many consumer and business loans.

The ultra-low loan rates the Fed engineered were intended to help the economy recover from the Great Recession. Since then, the economy has nearly fully recovered even as pressures from abroad appear to have grown.

In a statement it issued after its meeting ended, the Fed said that while the U.S. job market is solid, global pressures may "restrain economic activity" and further slow inflation.

Signs of a sharp slowdown in China, the world's second-largest economy, and other emerging economies have intensified fear about the U.S. and global economy. And low oil prices and a high-priced dollar have kept inflation undesirably low.

"We're focused particularly on China and emerging markets," Yellen said at her news conference. "We've long expected, as most analysts have, to see some slowing in Chinese growth over time as they rebalance their economy. The question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect."

China's economy has slowed for four straight years — from 10.6 percent in 2010 to 7.4 percent last year. The International Monetary Fund expects the Chinese economy to grow just 6.8 percent this year, slowest since 1990.

The continuation of the Fed's ultra-low-rate policy likely means that rates on mortgages and car loans will remain low. That could help maintain steady economic growth and hiring in coming months.

Mark Vitner, an economist at Wells Fargo, said he was a bit disappointed by the Fed's delay because it suggested that the U.S. economy still wasn't at full health. But by holding down loan rates, the delay could lift home sales and construction, he said. More homebuilding, in particular, can help drive growth by creating construction jobs and boosting sales of furniture, appliances, electronic goods, and landscaping services.

"That could allow the US economy to be in an even better place a few months from now," Vitner said.

Other analysts worry, though, that ultra-low rates are encouraging more risk-taking by investors and could inflate bubbles in the stock market or other assets.

Stocks ended mostly lower after a volatile day as traders tried to decide on the path of interest rates. The Dow Jones industrial average ended down 65 points, or 0.4 percent. It had rallied shortly after the Fed's statement came out, then drifted lower. But bond prices rose, sending yields lower, as traders reacted to the Fed's prediction that inflation will remain subdued.

Financial markets had been zigzagging with anxiety this summer as investors tried to divine whether the Fed would start phasing out the period of extraordinarily low borrowing rates it launched at a time of crisis.

At her news conference, Yellen stressed that even after the first increase from zero, interest rate policy will be "highly accommodative for quite some time." She has stressed that any rate increases will likely be modest and gradual.

The Fed's action Thursday was approved on a 9-1 vote, with Jeffrey Lacker casting the first dissenting vote this year. Lacker, president of the Fed's Richmond regional bank, had pushed for the Fed to begin raising rates by moving the federal funds rate up by a quarter-point.

Instead, the Fed retained language it has been using that it will be appropriate to raise interest rates when it sees "some further improvement in the labor market" and is "reasonably confident" that inflation will move back to the Fed's optimal inflation target of 2 percent.

The Fed's preferred measure of inflation was most recently up just 1.2 percent, compared with 12 months earlier. And it's been below 2 percent, year over year, for more than three years.

In an updated economic forecast, 13 of the 17 Fed policymakers said they see the first rate hike occurring this year. In June, 15 Fed officials had predicted that the first rate hike would occur this year.

The new forecast significantly lowered the expectation for inflation this year to show the Fed's preferred inflation gauge rising just 0.4 percent, down from a 0.7 percent forecast in June. The change takes into account the further rise in the value of the dollar, which makes imports cheaper, and a recent drop in oil prices. The Fed's forecast still foresees inflation accelerating to a 1.7 percent increase next year, still below its 2 percent target.

The new forecast has unemployment dropping to 5 percent by the end of this year, down from 5.3 percent in June. The unemployment rate in August dropped to a seven-year low of 5.1 percent.

The anxiety that gripped investors before Thursday's decision stemmed in part from concern that once the Fed starts raising its key rate, other rates — for mortgages, car loans, business borrowing — will eventually rise. Some fear the economy might suffer.

Yet the Fed's influence on many consumer and business rates is only indirect. In the short run at least, those rates could continue to stay low, held down by low inflation globally and by a flow of money into U.S Treasurys.
___

AP Economics Writers Paul Wiseman and Christopher S. Rugaber contributed to this report.


-- (c) Associated Press 2015-09-18

[Pinot]

This has been THE most anticipated announcement ever. So, when the market gets what it wants, no interest rate hike, it falls 65 points! What would have happened if rates had been raised?

The volatility of the market is so frustrating. Trying to make a buck is very difficult in this environment, but what other game is there

Stay in USD cash and hope for a further drop in the baht?

I stay invested in the market and take my lumps, hoping for better days.

[Srikcir]

Predictable rate freeze but I expect to see another increase end of year. Gold prices will recover to some extent just from 2015Q4 inflation in the USA.

[Civilnow]

This has been THE most anticipated announcement ever. So, when the market gets what it wants, no interest rate hike, it falls 65 points! What would have happened if rates had been raised?

The volatility of the market is so frustrating. Trying to make a buck is very difficult in this environment, but what other game is there

Stay in USD cash and hope for a further drop in the baht?

I stay invested in the market and take my lumps, hoping for better days.

Still waiting for the bubble to burst.

[Civilnow]

Predictable rate freeze but I expect to see another increase end of year. Gold prices will recover to some extent just from 2015Q4 inflation in the USA.

Gold could go to 450 an ounce, 850 is normal as the last seven years are a fluke

[connda]

I'm shocked! Simply shocked!

[Harsh Jones]

Predictable rate freeze but I expect to see another increase end of year. Gold prices will recover to some extent just from 2015Q4 inflation in the USA.

The Fed has been conning people into thinking that they will raise rates since 2008. Don't fall for it. The zombie economy in its current form in the US can only exist with net negative interest rates.

The Fed will hike rates -- in 2011 - Dec. 15, 2009

money.cnn.com/2009/12/15/news/economy/fed_rates/index.htm?...

Dec 15, 2009 - Economists say they think the chairman and many other policymakers ... "Am I worried about the Fed being behind the curve in raising rates?

When will the Fed hike interest rates? - Apr. 12, 2012

money.cnn.com/2012/.../federal-reserve-interest-rates-2014/index.htm

2012-04-12 · ... his colleagues may have to raise rates as early as ... 2012: 5:29 PM ET. Related ... Federal Reserve officials argue publicly about the c

1. Federal Reserve expects not to raise rates until 2013 ...
   www.bbc.co.uk/news/business-14467241

   2011-08-09 · ... Federal Reserve says it expects to keep US interest rates at their current low levels until at least the middle of 2013. ... Federal Reserve expects ...

   BMO forecasts key interest rate hike by July, 2014 - CTV News

   www.ctvnews.ca/.../bmo-forecasts-key-interest-rate-hike-by-july-2014-1....

   Jun 19, 2013 - The global economy is headed for a better year in 2014 on the back of ... 28, 2012. ... rate in July 2014, a full year before the U.S. Federal Reserve, BMO's ... the bank will likely stand back and won't raise interest rates as much ...

[Harsh Jones]

Predictable rate freeze but I expect to see another increase end of year. Gold prices will recover to some extent just from 2015Q4 inflation in the USA.

Gold could go to 450 an ounce, 850 is normal as the last seven years are a fluke

Hogwash. Funny how ppl always get bearish at the bottom.

Gold has made its 50% trip just like in 1974 to 1976. ($35 in the 60's to $200, then back down to $100) That is you at #6 making your prediction.

[1] "For the moment at least, the party seems to be over." New York Times, March 26.

[2] "Though happily out of the precious metal, Mr. Heim is no more bullish on the present state of the stock market than any of the unreconstructed gold bugs he's had so much fun twitting of late. He's urging his clients to put their money into Treasury bills." New York Times, March 26.

[3] "'It's a seller's market. No one is buying gold,' a dealer in Zurich said." New York Times, July 20.

[4] "Though the price recovered to $111 by week's end, that is still a dismal figure for gold bugs, who not long ago were forecasting prices of $300 or more." Time magazine, August 2.

[5] "Meanwhile, the economic conditions that triggered the gold boom of 1973 through 1974, have largely disappeared. The dollar is steady, world inflation rates have come down, and the general panic set off by the oil crisis has abated. All those trends reduce the distrust of paper money that moves many speculators to put their funds in gold." Time magazine, August 2.

[6] "Our own predictions are that gold will go below $100, with some hesitation possible at the $100 level." As stated by Mr. Heim in the August 19 New York Times.