Fed Puts US Rate Rise On Backburner

0
1037

Worries about interest rate rises in the United States may have been put on the back burner by the Federal Reserve.

Minutes of the latest open market committee meeting cite concerns about the strengthening dollar and fear of global economic growth faltering may put off a decision to hike rates.

The US policymakers are watching developments in the Eurozone, China and Middle East to see what effect they may have on the economy before putting rates up.

Markets are falling in the UK and Europe following further indecision by the European Central Bank to bolster the single currency zone.

A speech by bank president Mario Draghi has failed to stir up confidence that falling inflation and stagnant growth will change any time soon.

Booking.com

Strengthening dollar

Growing concerns about the spread of the Ebola virus are also affecting markets, with funds seeing investors switch out of travel into pharmaceuticals.

The US policymakers expect the dollar to strengthen more as investors make the US a safe haven destination for their cash.

One important consideration is the US has an economy that is buffered against external factors as only around 15% of goods and services are imported or exported.

“The committee reckons the US needs a considerable period between the end of quantitative easing and a rise in rates due to the strength of the dollar that is doing the job of raising interest rates,” said investment fund Schroders chief economist Keith Wade.

“Falling oil prices are also helping US imports, making them generally cheaper.

“As a result, the committee seems to be adopting a wait and see approach rather than tampering with rates.”

Low inflation

Wade’s opinion is echoed by Invesco Perpetual’s Chief Economist John Greenwood, who expects to see US and UK central bank policies moving away from those in the Eurozone and Japan.

He expects to see low global growth due to low demand in the UK and US further stalling improvements in exporting economies like China, Japan and Europe.

“The US dollar will gain in strength and interest rates will have to rise in the States and UK, but this may happen later than expected,” said Greenwood.

Greenwood also pointed out that growth had slowed in the emerging economies in Brazil, India and Russia.

“The upside of these developments is many economies have latent capacity which should hold down inflation for some years to come,” he said.

Leave a Reply