Federal Reserve held back rate increase over global concerns

US federal reserve buildingThe Federal Reserve did not raise interest rates last month due to global market volatility, according to the minutes of the Federal Open Market Committee (FOMC) released yesterday.

The minutes revealed that despite a strong US jobs market and inflation on the rise, the FOMC decided it could not raise rates as “the underlying factors abroad that led to a sharp, though temporary, deterioration in global financial conditions earlier this year had not been fully resolved and thus posed ongoing downside risks.”

Janet Yellen, Fed chair, has repeatedly said that it will “proceed cautiously” in raising interest rates from their current target levels of 0.25-.5%. The minutes also revealed that all but one member of the FOMC voted to keep rates on hold, however there were some disagreements.

For instance some members disputed whether the US is nearly at full employment and how much weight to put on a recent pickup in inflation and subdued inflation expectations.

The Fed last raised interest rates in December although the minutes further reveal that the FOMC is far from consensus over when next to continue the normalisation process. Some FOMC members “noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate.”

Fund managers, especially those involved in the bonds market, will be anxiously awaiting the next Fed meeting in April. Any surprises can cause havoc, as those with long memories will remember from the 1994 Fed rates hike which led to a mass sell-off.

©2016 funds europe