Steady as she goes

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So there we have it, the Fed has left interest rates on hold, and as I have been saying, this was to be expected. Janet Yellen talked about uncertainty over China being a significant factor, and as I outlined again yesterday, subdued inflation was held out as another reason to remain loose. The US indices ended lower, with the DOW trading in a 300 point range, but I think ultimately markets will take heart that the Fed is staying the course and maintaining a steady as she goes policy. I remain of the view that we won’t see rates raised until 2016, and this will be positive for equities in the remaining months of the year.

Back to the Fed and the statement delivered by Janet Yellen following the decision to leave rates on hold was played with a fairly straight bat. Reference was made to global uncertainties and market volatility, and as I suggested yesterday, the go to reason for maintaining the status quo was subdued inflation. 

The Fed noted that “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term…The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad,”

The subdued inflation numbers the day before probably came at just the right time for the Fed, with Bloomberg noting expectations that inflation won’t hit their 2 percent goal until 2018.

While the US markets closed lower, I think that investors in the weeks and months ahead will take comfort that rate hikes increasingly look like being off the table for the rest of the year. The Fed reiterated that it wanted to see “some further improvement in the labour market,” and be “reasonably confident” that inflation will rise.

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