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Federal Reserve Announcement: Near Zero Rates Continue Amid Weak Global Outlook

In a closely watched development, the Federal Reserve (Fed) decided not to raise the Federal Funds rate, meaning that the U.S.’s key lending rate will remain near zero. The decision signals a cautious approach by the central bank amid recent volatility in financial markets and slowing global economic growth. The short-term benchmark interest rate, which stands at the 0 to 1/4 percent target range, has not been raised since 2006.

There was anticipation within the investment community that the Fed was prepared to begin a cycle of rate increases as the U.S. economy gathered steam; however, the decision by the committee to keep rates on hold was almost unanimous.

It is clear from the statement that committee members are concerned about economic and equity market uncertainty around the globe. While not mentioning China specifically, it is evident that recent turmoil on the mainland played a role in the decision to leave rates at historically low levels.

“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 Fed stated. “The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad.”

Weighing the Impact

MD expects the latest decision by the Fed to have little impact on our U.S. Funds and Pool, as the assets are invested with a long-term approach and not reactionary to short-term events. The accommodative monetary policies of central banks around the globe continue to be supportive for financial assets. MD’s approach to constructing diversified portfolios that are tailored to individual needs are well suited in times of increasing volatility. See MD’s preparedness for market volatility.

The Fed’s next policy meetings in 2015 are: October 27-28 and December 15-16.

MD monitors global economic trends, integrating viewpoints from carefully selected managers who actively invest for the benefit of our clients. We encourage you to speak with your MD Advisor if you have any questions. Your MD Advisor can work with you to ensure your portfolio is diversified and well positioned to withstand market volatility.

The information contained in this document is not intended to offer foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals. Incorporation guidance is limited to asset allocation and integrating corporate entities into financial plans and wealth strategies. Any tax-related information is applicable to Canadian residents only and is in accordance with current Canadian tax law including judicial and administrative interpretation. The information and strategies presented here may not be suitable for U.S. persons (citizens, residents or green card holders) or non-residents of Canada, or for situations involving such individuals. Employees of the MD Group of Companies are not authorized to make any determination of a client’s U.S. status or tax filing obligations, whether foreign or domestic. The MD ExO® service provides financial products and guidance to clients, delivered through the MD Group of Companies (MD Financial Management Inc., MD Management Limited, MD Private Trust Company, MD Life Insurance Company and MD Insurance Agency Limited). For a detailed list of these companies, visit md.cma.ca. MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. MD Financial Management Inc. is owned by the Canadian Medical Association.