US delays interest rate hike amid global growth concerns

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US authorities have voted against raising interest rates, keeping federal targets at 0-0.25 per cent.

Of the nine members of the Federal Open Market Committee, only Richmond Federal Reserve Bank president Jeffrey Lacker voted for an increase, arguing for a 25 basis point rise.

The vote means that US interest rates have now been kept at the same level since December 2008.

In a statement issued alongside the decision, the Federal Reserve cited concerns with the global economy as key to the decision.

It said: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.

“Nonetheless, the committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labour market indicators continuing to move toward levels the committee judges consistent with its dual mandate.

“The committee continues to see the risks to the outlook for economic activity and the labour market as nearly balanced but is monitoring developments abroad.”

The vote comes just over a week after the Bank of England again agreed to leave the UK base rate at 0.5 per cent.

Aegon UK investment director Nick Dixon says the Fed remains likely to move “in the next few months”, while Prudential Portfolio Management Group senior economist Leila Butt forecasts an increase before the end of the year.

Butt says: “We maintain our view that the Fed will raise rates in 2015, as the labour market is tight and inflation is being held back by temporary factors.

“Pushing the first rate hike further out raises the risk of the Fed having to tighten subsequently more aggressively, which could be disruptive for both the US and global economy – beginning the rate hiking cycle earlier would allow for a more gradual path of rate rises.”

Hargreaves Lansdown senior economist Ben Brettell says the decision to maintain rates should not have come as a surprise.

“There were plenty of reasons for Janet Yellen and the FOMC to exercise caution.

“Concern has been building over the health of the global economy. China’s travails have been well publicised, and this week the OECD said that an emerging market slowdown means the world economy is set to grow 3.0 per cent this year and 3.6 per cent next year, down from June’s forecasts of 3.1 per cent and 3.8 per cent.

“Coupled with this was just enough doubt about the domestic recovery,” Brettell says, citing figures showing a contraction in manufacturing activity, while prices and wage growth also remain below expectation.

He adds: “Most Fed-watchers had pencilled in three possible dates for the first rise – today, 16 December and 16 March.

“These are the dates when the decision is followed by a press conference from Janet Yellen. However, speculation has now turned to October – there is no meeting scheduled for November, and potential reluctance to raise rates when liquidity is poor close to Christmas.”