The Fed interest rate rise – the dog that didn’t bark

A long-awaited meeting of the US Federal Reserve did not result in an interest rate rise.

2 p.m. New York time on Thursday 17 September had been much anticipated by investment professionals around the world. It was the hour when the Federal Reserve Open Market Committee would release its meeting statement, revealing its latest interest rate decision. Ahead of the announcement there had been much speculation that an interest rate ‘lift-off’ would happen. Even the head of the Federal Reserve, Janet Yellen, had hinted as much.

When the time arrived, there was something of an anti-climax. The decision was to keep rates on hold, which at first sight might have been expected to be good news. However, the market thought differently:

  • 13 of the 17 members of the Federal Reserve Board (Fed) still thought 2015 was the year in which to start raising interest rates. So the waiting game continues.
  • The statement said “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.” This prompted a familiar market worry: what does the Fed know that we don’t?

The next Fed meeting is in late October, but it is a meeting where there is no scheduled press conference afterwards. The final meeting of the year on 15-16 December, complete with press conference, is now being penciled in as when the decision to increase rates will be taken. In the interim, we can expect more market gyrations as the experts attempt to second guess Ms Yellen and company.

If volatility concerns you, do talk to us before taking any action.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

 30th October 2015

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