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The Fed Leaves Interest Rates Unchanged

Sunil Swami, Chief Investment Officer | SEP 21, 2015

The Federal Reserve left interest rates unchanged on Thursday, September 17, citing "global economic and financial developments." Many market participants had expected the country's first rate hike in almost a decade. The Fed also cited "overall global weakness" as a factor that, along with the aforementioned economic and financial developments, has "reduced inflation and may restrain economic activity” to justify not raising rates. During her news conference, Fed Chair Janet Yellen made reference to the market turmoil in August and concerns about the performance of the Chinese economy, now the second largest in the world.  

How Markets Reacted

Currency and fixed income markets reacted predictably, to the announcement. Both the dollar and bond yields fell. However, equity markets which should have celebrated the more accommodating monetary policy, also fell.

Our View

We believe the Fed saw the risks skewed asymmetrically to a rate increase and correctly decided to hold off. Financial conditions had already tightened before the Fed meeting, due to lower equity and commodity prices, a strengthening dollar, and widening credit spreads. Inflation continues to be below the Fed’s target of 2 percent and trouble in China and many emerging market countries is filtering into the U.S. economy in the form of a stronger dollar and lower import prices, which have combined to cause market-based inflation expectations to fall in recent months.

This article is provided for informational purposes only, is not intended as an offer or solicitation for the purchase or sale of any financial instruments and should not be relied upon as an investment recommendation. Alerus Financial, N.A. and its affiliate subsidiary companies make no representations or warranties as to the accuracy, completeness or timeliness of the information. The information is not intended to provide legal or tax advice. Individuals should consult a qualified legal or tax advisor for advice specific to their circumstances. 

About the Author

Sunil Swami, Chief Investment Officer

Mr. Swami has decades of experience in the investment management and related fields.

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