Federal Reserve holds interest rates amid “softening” employment market
The Federal Reserve, in a widely expected move, held US interest rates at two per cent last night, with Dallas Federal Reserve Bank President Richard Fisher the only dissenter among the 11 person panel.
The statement from the central bank referred to the “softening” labour market and the “considerable stress” upon the financial market as core reasons for its decision.
Unemployment rose for the seventh consecutive month in July, while the continuing credit problems and elevated energy prices mean economic difficulties could persist.
The committee said: “The inflation outlook remains highly uncertain and we will continue to monitor economic and financial development.” James Knightley of ING says this reflects the fact that the Fed has no “pre-determined hiking strategy in place.”
There remains the suspicion that the economy may weaken anew in the coming months, as the effects of government stimulus upon consumer spending wears off and doubts about employment rates endure.
Julian Jessop chief international economist for Capital Economics told City A.M: “It would be unprecedented for the Fed to start increasing interest rates while the unemployment rate is soaring.” These sentiments were echoed by Knightley: “We doubt the market’s view that the Fed will raise rates this year.