The Fed will likely not raise interest rates in the near future. On Thursday, the Federal Reserve released its September minutes, which announced its reluctance on increasing short-term interest rate over worries of depressing inflation.
The primary drivers behind this notion seemed to be China’s sluggish growth and a stronger than expected US dollar. If rates were to rise, the Fed fear that a drop in US exports due to the aforementioned factors will slow the economy and dampen inflation.
Although other key factors, such as unemployment rates, have maintained consistent with Fed expectations at 5.1%, it feels the uncertainty in the global economy has a strong potential to undermine its inflation target of 2%. Combined with the implication of the private sectors hiring slowing down in August and September, the merit of a rate hike becomes more confusing.
While Fed Chairwoman, Janet Yellen, believes it will be most prudent to first observe the course of the economy over the next few months prior to making a decision, some officials are worried about the accumulation of financial imbalances caused by near zero rates. The Fed has been meaning to raise rates since June this year, but had to delay until September due to the market crash in August. To finalize the decision, the Fed will meet again later this month and in December.
Personally, I feel the Fed’s decision is justified. Amidst a market filled with domestic and global uncertainties, there is no good validation that a rate hike will be entirely beneficial by any means. Only by carefully assessing where the schematics of the global economy will lead overtime, can the Fed truly make an informed decision.