America Refrains From Raising Interest Rates, Granting Respite to China and Other Emerging Markets

The US Federal Reserve has kept the fed funds target range steady at 0.25%-0.5%. The April 27 decision caused relief in emerging Asia, including China, which had feared capital flight and declining investment as the US dollar becomes more attractive to investors.

That can still happen. The Fed continues to signal that it will still raise rates this year. Economists expect at least two increases, possibly in June and December.

“Of course, the June meeting is a long seven weeks away -- with lots of data and looming event risk (Brexit vote) between now and then that could sway the Fed in one direction or the other, irrespective of what they think today,” said the Royal Bank of Scotland in a research note. Britain will hold a referendum on June 23 on the question of its membership in the European Union.

Positive Slant

The US had raised interest rates in December, but had been holding off since then because of fears about the fragile global economy. In its March meeting, the central bank said that "global economic and financial developments continue to pose risks."

That sentence was dropped in the April 27 statement, although it said that the Federal Open Market Committee “continues to closely monitor inflation indicators [in the US] and global economic and financial developments."

Analysts interpret the new phrasing to mean that the Fed believes the global economy is moving in the right direction.

The policymakers also appeared more positive on the US economy. “Labor market conditions have improved further even as growth in economic activity appears to have slowed,” said the Fed statement. “Growth in household spending has moderated, although households' real income has risen at a solid rate and consumer sentiment remains high.”


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