The Cable

Hurry Up and Wait: U.S. Fed Puts Off Interest Rate Hike Yet Again

The U.S. Fed, citing global concerns, puts off interest rate hike.

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Citing continuing concerns about the health of the global economy, U.S. Federal Reserve chief Janet Yellen again delayed an interest rate hike Wednesday, keeping it virtually free for corporations and ordinary investors to borrow cash from the U.S. central bank.

Yellen’s announcement was expected; she, along with her colleagues on the Federal Open Market Committee (FOMC), declined to raise rates in September, citing concerns about the economic slowdown in China and it spillover effects to the rest of the world. Since then, little has changed — Beijing is still trying to get its economy to grow, recently cutting its own interest rates for the sixth time this year in an effort to stimulate economic activity. That left little mystery to Yellen’s announcement.

“The [committee] continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments,” the FOMC wrote in minutes of its October meeting that were released Wednesday.

Raising interest rates — something Wall Street and policymakers around the world have been anticipating since March of this year — is a double-edged sword. If Yellen lifts them for the first time since 2006, it’s a sign of the Fed’s confidence in the U.S. recovery from the Great Recession; they’ve been near zero since 2008, the darkest days of the economic downturn unleashed by the collapse of Lehman Brothers.

But increasing the cost of borrowing has a risky downside. Firms might be reluctant to take out loans to expand while consumers would have to pay more for cars, homes, and other big-ticket items that require buyers to take on debt. Both scenarios could bite into U.S. economic growth.

Now, all eyes have turned to December, when the Fed meets again. Yellen has continually left the door open for a rate rise this year. But futures markets are betting against it; they predict the zero-rate policy will continue into next year. According to CME Group’s FedWatch Tool, the market isn’t pricing in a rise in the cost of borrowing until March 2016.

“It is very unlikely that the [FOMC] would have contemplated a hike during their … meeting,” Société Générale analysts wrote in a research note to clients. “More critically, officials will have to decide whether they still consider a December rate hike as likely and, if so, come up with a game plan to prepare the markets.”

Photo credit: Win McNamee/Getty Images

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