The US Fed held its regular monthly meeting this week and once again the world’s interest rate markets held their collective breath to see what chair Janet Yellen would do. As expected though, the Fed left its benchmark interest rates unchanged. It did note that growth in economic activity appears to have softened but labour market conditions in the US had improved.
The Fed is keen to move interest rates away from between 0.25% and 0.50% and the market is betting on the June meeting for a change to occur. The Fed moved rates from close to 0.00% at its December 2015 meeting after holding them steady since 2008. It has previously commented on volatility in global markets as one reason why rates have not risen more quickly. It is also said to be concerned that Japan and Europe are stimulating markets to the tune of billions of dollars each month and that a rate rise by the US could see the US dollar soar to economy-stifling levels.
A vote of the UK’s exit from the European Union could also create significant volatility and the Fed are known to be keen not to get caught shifting rates against such a backdrop. A vote on the ‘Brexit’ is scheduled for 23 June.
Overall the Fed is looking at a more gradual series of rate increases than has been the case in past tightening cycles and as usual it will be data dependent.