Fed rate decision sparks mixed reactions

By Taylee Lewis
 — 1 minute read

The US Federal Reserve declined to raise the official interest rate last week, citing recent economic developments and subdued inflation as foremost concerns, according to Colonial First State Global Asset Management.

Colonial First State Global Asset Management (CFSGAM) said the Fed decided to leave the official Fed Funds target rate at 0.0 per cent to -0.25 per cent. 

CFSGAM, and various market commentators, have described the accompanying statement to the decision as "dovish". 


The statement stated: “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 statement revealed that going forward, a rate rise will be appropriate when there is further improvement in the labour market and when inflation moves back to its two per cent objective over the medium term.

AMP Capital's chief economist, Shane Oliver, said the policy decision reflects the Fed’s acknowledgement of what is eventuating globally, and is therefore unwilling to threaten global growth.

However, “a Fed rate hike is likely still out there somewhere and uncertainty around it will likely return at some point," said Mr Oliver.

"It’s likely to come at a time though when there is less global uncertainty and so hopefully should mainly be a constraint on US shares as opposed to global shares,” he said. 

Commenting on a future rate hike's impact on the US economy, Magellan Asset Management chief executive Hamish Douglass said the US economy will likely "pick up speed" when they start tightening. 

Principal Global Investors portfolio manager, global fixed income, Darryl Trunnel said: "Although the Fed didn't raise rates [in September], we think the clarity provided from the minutes of their meeting, along with the press conference afterwards, should help lessen the volatility in the market."

Mr Trunnel expects the Fed to raise rates once by the end of 2015. 

Mr Oliver added that the decision to keep rates on hold is a "mixed-blessing" for Australia.

“On the one hand it would have been better to have seen the Fed able to raise interest rates as it would signal greater confidence in global growth and ongoing downwards pressure on the value of the [Australian dollar].

“Ultimately though the down-trend in the [Australian dollar] is likely to resume – as the Fed is still likely to hike at some point.

"The [Reserve Bank of Australia] is likely to remain under pressure to cut and commodity prices remain weak – so there is no change to my view that the [Australian dollar] will fall to around US$0.60 in the next 12 months or so,” Mr Oliver said.


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