Fed holds fire on interest rate hike

Fed holds fire on interest rate hike

The US Federal Reserve has left interest rates on hold at 0.25 per cent to 0.5 per cent, indicating that inflation remains below target and global financial developments "continue to pose risks".


The Federal Reserve issued a statement on Wednesday, announcing its decision to leave interest rates on hold in March. 

“The stance of monetary policy remains accommodative, thereby supporting further improvement in labour market conditions and a return to 2 per cent inflation,” the Fed said.

In determining the size and timing of future policy, the Fed indicated that an assessment would consider measures of “labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments”.

AMP Capital's chief economist Shane Oliver said the Fed’s decision was “widely anticipated”, and a hike in June was now more likely.

“The Fed appears to have no inclination to hike at its April meeting, but a June hike does look like a reasonable base case… but with only around a 55 per cent probability. And it’s dependent on global threats and financial market turbulence continuing to settle down,” Mr Oliver said.

Mr Oliver said the Fed was conscious of the global risks its monetary policy may induce.

“[The Fed is] continuing to indicate that it is conscious of global risks and that US rate hikes will be data dependent and gradual."

“So the Fed's latest decision is supportive for shares and growth assets, and should lead to an ongoing stabilisation in the value of the US dollar,” Mr Oliver said.

A risk for Australia, however, was that “continuing dovishness” places upward pressure on the value of the Australian dollar. Following the announcement, the Australian dollar rose 1.5 per cent.

“This could go further in the short term, but with the Fed still heading towards rate hikes (albeit ever more gradual) and the [Reserve Bank of Australia] still biased towards cutting rates we still see the [Australian dollar] ultimately resuming its downtrend,” Mr Oliver said.

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Fed holds fire on interest rate hike
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