In a 9:1 vote by the Federal Open Market Committee, led by Fed chair Janet Yellen, the committee said it would not raise rates until it saw greater improvements in the labour market and gained confidence inflation would reach its 2% objective over the medium term.
With an eye on declining energy prices and mindful that global financial pressures were restraining economic activity, the Fed said its outlook was “nearly balanced” but it would be watching international developments.
Kames Capital chief investment officer Stephen Jones said these were driving Fed decisions far more than any domestic challenges, as the US economy on its own merit could support higher interest rates.
“What clearly took some influence on their decision though, is the slowdown in emerging market economies and perhaps some uncertainty about what’s happening specifically in China. And weighing all those influences up, then they clearly erred on the side of caution and didn’t move,” he said.
Anna Stupnytska, global economist at Fidelity Worldwide Investment still feels a December rise is likely.
“While the FOMC signalled continued confidence in the state of the US economy, it was made clear that, together with the low level of inflation, external risks and financial market developments became decisive factors against the hike this time,” she said.
The recently tighter US financial conditions would slow down US growth and she noted concerns over China and other emerging markets were fuelling the overall uncertainty at this point. The FOMC’s next two meetings will be in October and December.