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.