Date
28 March 2017
The US dollar continues to weaken against a basket of currencies, with the Fed holding off on another rate hike. Photo: CNBC
The US dollar continues to weaken against a basket of currencies, with the Fed holding off on another rate hike. Photo: CNBC

Fed keeps US interest rates unchanged

US interest rates were left unchanged on Wednesday, signaling the Federal Reserve has accounted for the stock market selloff.

Policymakers said they are “closely monitoring” global economic and financial developments, Reuters reports.

The decision by the central bank’s rate-setting committee was widely expected after a month-long plunge in US and world equities raised concern an abrupt global slowdown could drag on US growth.

Fed officials said the economy remains on track for moderate growth and cited a stronger labor market even with “gradual” rate increases, suggesting its concern about global events had diminished.

They did not rule out a rate hike in March.

“The committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation,” the Fed said in its policy statement following a two-day meeting.

Wall Street fell after the statement, with the Standard & Poor’s 500 index closing down more than 1 percent.

Prices for US Treasuries were mixed while the dollar extended losses against a basket of currencies.

In an indication the Fed is taking global risks seriously, a prior reference to the risks to the economic outlook being “balanced” was removed from its statement.

Instead, it said it was weighing how the global economy and financial markets could affect the outlook.

“It is clear that several FOMC members have become more worried,” said Harm Bandholz, an economist at Unicredit in New York, referring to the Fed’s rate-setting Federal Open Market Committee.

Shrugging off economic weakness in China, Japan and Europe, the Fed last month raised its key overnight lending rate by a quarter point to a range of 0.25 percent to 0.50 percent and issued upbeat economic forecasts that suggested four additional hikes this year.

Wall Street’s top banks, however, expect only three rate increases before the end of the year, according to a Reuters poll released after the Fed’s statement on Wednesday.

That was in line with expectations earlier in January.

Investors are betting on one quarter-point rate increase in 2016.

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