Fed Decision: Hike Another Day

The Fed decision for an interest rate hike came out yesterday and the Federal Reserve decided to hold off on a rate hike, citing global economic and market developments as threats to the U.S. economy. As a result, market expectations for the first full rate hike are now priced out to March 2016, with the odds of a December hike falling from 84 percent to 64 percent.

The Fed decision had stocks fluctuating and bonds rallying in response. Stocks “bounced around” and were negative briefly, until trading became “choppy.” The market was slightly higher before Janet Yellen released the Fed decision. Stocks rallied during her remarks and closed mixed. Scott Clemons, a chief investment strategist at a wealth management firm said, “There is enough economic activity to allow the Fed to think about raising interest rates, but there’s not enough inflationary pressure to allow them to do so. I think this pushes it off until October. If between now and October, some of these developments abroad to which they refer—China—calm down, I think that will pave the path for an interest rate increase in October. It pushes out the inevitable.”

As part of the Fed decision, it raised its GDP forecast to 2.1 percent growth in 2015 but cut it for 2016—to 2.3 percent from 2.5 percent. 2017’s GDP growth projections were also cut, from 2.3 to 2.2 percent. The Fed’s 2015 inflation forecast fell from 0.8 percent in June to 0.4 percent, while 2016 dropped to 1.7 percent from 1.8 percent.

The most revealing part of the Fed decision announcement was its “downward revision in its economic forecast and inflation outlook, signaling real concern about the impact of China and foreign exchange volatility on the U.S. economy.” It’s important to consider the very real possibility that the Fed will not raise rates in 2015 because “uncertainty is not something you want to raise rates into.”

The Fed decision on Thursday was “one of the most anticipated in years, since there was a reasonable chance the central bank could have raised rates were it not for its concerns about international developments. About half of Wall Street’s economists expected a rate hike, even though market expectations were just about 30 percent.” The Fed decision continues the trend of not raising rates, which has been the norm for the last nine years. The Fed has held the rate at zero to 0.25 percent since December 2008.

Market uncertainty is the prevailing impediment for the Fed decision, and the volatility can also affect your personal investments. Now that the Fed decision has been pushed back to another day, investors should consider how they are managing their wealth and investments in this climate. If you would like to go over investment strategies, call an expert at Apex Financial Advisors today to make your own decision to protect, manage, and grow your wealth.