Global Economy Weak, Fed Holds Rates At Zero+
US Fed officials left the fed funds rates unchanged Thursday because of 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 FOMC said in its statement Thursday.
In holding their benchmark federal funds rate at Zero to 0.25%, policy makers showed they are not convinced inflation will move to their 2% target, despite continued headline gains in the labor market.
“On balance, labor market indicators show that underutilization of labor resources has diminished since early this year,” officials said.
The yield on the 10-year US T-Note fell 2e/32 to 2.22% at 2:10p in New York following the release of the statement from 2.30% late Wednesday. The S&P 500 spiked a few minutes later.
Richmond Fed President Jeffrey Lacker (rate hawk) dissented, saying he preferred to raise the target rate by 0.25%.
Economists worried that recent losses in China’s equity markets reflect deeper worries over growth prospects for the world’s 2nd-biggest economy. Slowing demand from China has also helped trigger a global slump in commodity costs, adding downward pressure to prices in the US.
Inflation, as measured by the Fed’s preferred gauge, was 0.3% in the 12 months through July and stands below 2% for more than 3 years.
The committee repeated that it will raise rates when it has seen “some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.”
Stay tuned…
HeffX-LTN
Paul Ebeling
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