The Fed keeps rates steady for now, EM bounce

The US Federal Reserve (Fed) Open Market Committee (FOMC) underlined weakening global economic growth and the recent upsurge in financial market volatility as primary reasons for not raising interest rates. Citing recent global economic and financial developments as a source for downward pressure on inflation, the latter has continued to run below the Committee’s longer-run objective, (although) the Committee expects inflation to rise gradually toward 2% over the medium term.

That’s why the Fed believes that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate as long as some further improvement in the labor market is necessary. If the economic activity in the US is expanding at a moderate pace and the risks to the outlook for economic activity and the labor market is nearly balanced, the Fed is closely monitoring developments abroad. As a result of the absence of any rate hike, emerging markets (EM) will likely bounce but the relief will be short-lived, analysts wrote.