Fed Keeps US Interest Rates At 0.5%

Wall Street has slipped back again as the US Federal Reserve pegged official interest rates at 0.5%.

The rate was raised for the first time in a decade in December – from 0.25% to 0.5%.

Since then, the Bank of England has opted to keep rates at a record low of 0.5%, while the People’s Bank of China has slashed rates.

The Fed did not indicate whether another rate rise is on the cards at the next meeting in March.

Rate setters at the Fed remarked that economic growth both in the US and globally had fallen since the rate rise was announced.

Strong consumer confidence

Other factors affecting the decision include further falls in the price of oil, low inflation and stock market volatility worldwide.

The Fed has seen 7% wiped off the value of the Dow Jones index so far this year.

Despite disappointing financial market performance, the US has an unemployment rate of just 5% and saw 280,000 new jobs created last month.

Consumer confidence appears strong with house prices rising, dealers selling new cars and wages going up.

However, the US dollar is performing strongly against other leading currencies, which is pushing up the cost of exports and reducing manufacturing demand from overseas.

The problem in the US and Chinese financial markets appears to be uncertainty.

Did Yellen make a mistake?

In the US, investors are unsure of when and by how much interest rates will rise and whether the economy can cope. For many investors, zero or low rates have been a fact of their entire working life and they have not had to deal with rising rates before.

In China, the markets fear regulators and the government are too worried about speculators moving in to make money from shares and foreign exchange trades and lack experience in a free moving market.

The point is whether the global economy is performing as badly as investors believe or is their fear of change creating doom and gloom pulling the markets down?

Many are suggesting that if Fed Reserve chief Janet Yellen might not have increased interest rates if she had realised how her action has affected financial markets around the world.

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