Fed Leaves Rates Unchanged

From CNBC:

Investors will have at least one more month to worry about whether the Federal Reserve is raising rates.

In the face of jittery financial markets and a global slowdown, the Fed blinked and held its key federal funds rate unchanged. September was supposed to be the month the U.S. central bank finally came off its zero interest rate policy, but instead it opted to hold steady for at least one more month.

During a conference after the announcement, Federal Reserve Chair Janet Yellen stressed the path of the Fed’s first rate hike in nearly a decade is more important than its timing.

Following the decision, U.S. stocks were choppy as investors parsed Yellen’s words for possible clues about rate timing and closed mixed.

Meanwhile, Treasury bond yields hit session lows, and safe-haven gold rose to highs not seen since September 4.

“One of the reasons for not hiking, I think, is that they didn’t want to continue to increase the strength of the dollar, which would reverberate back into the United States,” said Bill Gross, manager of the Janus Global Unconstrained Bond Fund.
RBS said the market is now pricing in the first full rate hike to occur in March, taking 2015 off the table.

Though giving a nod to an improving economy, with expectations slightly higher for gross domestic product and lower for the unemployment rate than three months ago, the Fed said low levels of inflation remain a problem.

“The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term,” the Federal Open Market Committee post-meeting statement said.

The vote to keep rates at zero saw only one dissent, from Jeffrey Lacker who wanted to raise by a quarter point—a move seen on Wall Street as a virtual lock just a month ago until markets revolted. The statement gave no indication of how close the Fed is to instituting its first rate hike since June 2006. Rates have been at zero since late 2008 when they were slashed in the midst of the financial crisis.

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