Overview of the Fed’s Decision: No Rate Hike A topic of much speculation, the Federal Reserve’s decision on a possible rate hike, was settled yesterday. Janet Yellen, chair of the Board of Governors, announced that the Federal Reserve is planning to continue to keep interest low despite improving economic conditions in the United States. To put the situation into perspective, it should be recognized that the Fed Funds Rate (the interest rate that basically sets the standard for other rates like the LIBOR to the rates on houses and student’s loans) has not been increased since 2006. The Federal Reserve has been signaling that they were planning on a rate hike in the near future but most analysts now project that a rate hike will not occur until December or early next year. The reasons for this are mostly related to market turmoil in other countries such as China, a desire for further improvement in the labor market, and to reach the Fed’s target 2% inflation rate. Most backlash against the Fed’s decision comes from the increasing strength of the U.S. economy and the lowest unemployment rate in 5 years.
The impact of the Fed’s decisions are already being felt today with a loss on both European and U.S. exchanges. While normally low interest rates help fuel equity markets, most analysts were expecting a rise in rates as a sign of “optimism on economic growth” by the Fed. What remains to be seen is the impact the Fed’s decision will have on the currency markets, what it signals about emerging markets and Asia (specifically China), and what the Fed will choose to do next at their October and December FOMC meetings.
- Sachin Shanbhag
-- Sachin Shanbhag Mobile: 732-439-1332 | New York University | Stern School of Business, 2018