US Fed Keeps Rates Steady

By Andrew Rickard | October 30 2015 09:51AM

The United States Federal Reserve has decided to leave interest rates near zero for another month. But is an increase possible in December?

A report from Scotiabank Global Economics notes that the US Federal Reserve's policy committee, the Federal Open Market Committee (FOMC), removed a line that had been added into its September’s statement that raised concerns about global growth. This change in wording suggests that the FOMC is less concerned about the effect that slowing economies in China and Europe could have on US growth and inflation.

"However, the statement does note that the Committee will continue to ‘monitor’ global economic and financial developments, so the FOMC likely isn’t completely appeased," add authors Derek Holt, Frances Donald, and Dov Zigler. "We find it difficult to believe that the international environment has significantly changed since the September FOMC meeting; central banks elsewhere are applying stimulus, but a hiking Fed in the face of easing abroad raises USD risks."

The Fed is keeping its options open for a potential rate increase in December, and has specifically said it will discuss changing the Fed funds rate at its next meeting.

"This shouldn’t be news insofar as senior Fed figures, including the chair, have discussed this possibility for months," concludes the Scotiabank report. "And of course, even if the Fed will discuss raising the Federal Funds rate at its next meeting, again, to quote the statement, the outcome of that discussion remains contingent on 'progress… toward its objectives of maximum employment and 2 percent inflation,’ i.e. it’s highly data dependent."