US Fed Reserve - Leaving rates unchanged will be beneficial.
US Fed Reserve - Leaving rates unchanged will be beneficial.Holding Fed Rates Steady is a Good Move
1. Weak World Economy in Need of Support - US Fed Reserve kept rates unchanged due to concerns about a weak global economy. Recent global economic and financial developments may limit economic activity and place a downward pressure on inflation in near term. Holding rates steady is helpful for increasing demand which had earlier been negative
2. Inflation Data Does not Support Rate Hike - Inflation data does not provide support for a rate hike during this time. Some amount of global turbulence adds to the justification for holding rates steady.
3. Fed Shows Consideration Which is Required - Given the current tightening of global economic situation, the Fed has acted in a proactive manner.
4. Changing the Battlefront - The US Fed Reserve has gone from fighting inflation to combating systemic downside risks in the international economy with even greater leverage than before
5. Limits Adverse Spill Back on US Economy - The Fed is concerned about further destabilisation in the global financial scene could undermine and spill back US recovery. Through this move, they will succeed in limiting adverse spill back to the American economy.
6. Can’t Avoid the Global Environment - US Fed has acted keeping the global environment in mind as overall weakness in growth is part of the reason and the slowdown in China and decreasing in commodity prices are already affecting things.
7. Emerging Markets Issue - The US Fed has also considered the interests of the emerging markets like India and kept the rates unchanged in this context.
8. Good for the Markets - Decision will be taken positively by the markets as keeping the rates steady will ensure the global economy grows
9. Stakes of Raising Rates High - There is too much global uncertainty currently and risk of raising rates from zero is different from raising rates at 4%
10. Need for Clarity About Market Volatility and Global Economy - US Fed has decided to play the waiting game and watch to see if the volatile markets continue and whether the economic slowdown in China spreads to other economies and if low oil prices will lower US oil production considerably
11. Markets Not Ready for Hike - Markets are not at all prepared for the hike which is the first in nine years. There is no need to rock the boat right now.
12. Right Move for Slowing Global Economy - The slowing global economy led by China will be accompanied by low inflation and negligible wages gains for workers has led to the Fed’s decision to keep the rates steady
13. Avoid a Possible Headwind to Growth - Dow was up 170 points in afternoon trading as Fed’s decision avoids headwind to growth according to most investors
14. Waiting for Improvement in Labour Market - An increase would only be appropriate when the condition of the labour market improved
15. Maximise employment growth - Holding the rates steady will maximise growth in a consistent manner with inflation target of 2%. Despite a growth in job creation and fall in unemployment rates. no sign of inflation is picking up. Headline inflation is at the annual rate of 0.2% only and core inflation is at 1.8 percent.
14. Income Inequality will be contained - By supporting job and income growth, the Fed has effectively combated income stagnation and rising inequality by keeping interest rates steady
15. Central Bank’s Counsel - By heeding the ECB, IMF and WB’s counsel, the Fed has acted with caution. Fed rate rise could have triggered panic and turmoil in emerging markets at this stage.
16. Fall in Oil Prices - This has sent inflation rates tumbling and this has exacerbated the need for containing the volatility of the situation
17. Combating the Unknowns - There are more crosscurrents in economic and financial development that need to be taken into account. For example, though the unemployment rate has fallen sharply, there is an increase in number of persons working part time involuntarily and additional margins of slack
Holding Fed Rates Steady is a Bad Move
1. Will Contribute to Global Slowdown - Given the employment rates, job openings and labour turnovers as well as unemployment claims, it can be argued that US Fed should have not left the rates unchanged. In fact, the longer they wait, the more likely it is that the US and world economy will slip into slowdown
2. Too Overly Cautious - The US Fed Reserve has been dovish rather than hawkish in its approach even when it is not justified
3. Too Much Emphasis on Global Factors - Central bank and overseas volatility outweighed other aspects of the economy such as growth and falling unemployment rate, resulting in a delay in hiking rates
4. Meaningful Wage Growth Needed - Fed decisions cannot ensure meaningful wage growth emerges and this will likely have an adverse impact on workers as well as investors
5. Fed Being Held Captive by Markets - The US Fed is being held captive by markets and trapped at near zero rates- from where they have not moved since the 2008 financial crisis. Placing the faith in the stock markets which are volatile and unpredictable may turn out to be bad for the US Fed because market forces and not economic fundamentals are driving policy
6. Emerging Markets View too Narrow - Yellen invoked China 16 times in 1 hour of the presentation about the Fed rates. Fed is fuelling market volatility through its move to keep interest rates unchanged based on how emerging economies are reacting
7. Bad Market Signs - The Dow dropped nearly 300 points on 18th September 2015 and the Fed is helping to cause market turbulence that is keeping it from raising the rates
8. Fed Stuck in Vicious Cycle - Even Janet Yellen has not ruled out that the Fed could be stuck in a vicious cycle and never escape from extremely low rates
9. Credibility Problem - Fed should not be responding to the markets, but to economic fundamentals to make decisions. Perception is important and any decision which favours the markets at the cost of the global economy is detrimental to the interests of the world . Fed has not raised interest rates since 3369 days now.
10. Strikes Blow to US Recovery Story - Domestic indicators have been strong but keeping the interest rates close to zero point is a move that has dealt a blow to the US economy. America, the engine of economic growth has now become vulnerable to global developments and this is not healthy for what is considered the world’s strongest economy. If the best performing economy in the world is not judged suitable for increase by a small magnitude in the cost of borrowing, global economy is in a bigger mess than previously envisaged.
11. Gone From Critical to Recovery - First post crisis rate hike would have meant the US and world economy is recovering. But keeping the rates steady points in the opposite direction and it is bad news for the economy.
US is a large and open economy but for it to sustain healthy growth, a strong international economy is a must. Given that the world economy is interconnected in numerous ways, there is little doubt that acting in the interests of the US economy as against that of the world will have dramatic repercussions for the global economy. Rather than pitting the US economy against emerging markets or the international economy, Yellen has shown a healthy regard for the recovering and still fragile global economy. Keeping the interest rate unchanged could well transform the global economy into a robust one, apart from impacting the US economy positively.This could be the “win-win” situation the US Fed is looking at. Holding the rates steady is a good move forward.