11th February 2016
The US Federal Reserve has downplayed the possibility of another interest rate hike in March in the wake of the recent market turmoil.
On Wednesday, 10 February, Fed chair Janet Yellen has asserted that while the Federal Open Market Committee might not be ready to raise interest rates for a second time in March, she still anticipates a “gradual” series of rate hikes over the next couple of years.
In December, the US central bank raised its key interest rate, by 0.25%, for the first time in almost a decade.
In a statement, this week Yellen said: “Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers and a further appreciation of the dollar.
“Against this backdrop, the Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labour market indicators will continue to strengthen.”
But research group Capital Economics urged that her view is “clearly at odds with futures markets, which imply that any additional rate hikes are almost now off the table”.
Paul Ashworth chief US economist at Cpaital Economics said: “Yellen’s comments don’t change our view that the Fed will stand pat in March.
“Nevertheless, by June we expect global economic and financial conditions to have stabilized enough for the Fed to begin raising rates again, particularly if wage growth and domestic price pressures continue to rise. We anticipate that the fed funds target range will reach 1% to 1.25% by end-2016 and 2.25% to 2.50% by end-2017.”