Why the FED didn’t raised interest rates ?

The puzzle of why the Fed didn’t raised rates, this Thursday, is still going on, and investors are still debating about it. According to what the Governor said, this time for the Federal Committee the decision wasn’t as simple and it wasn’t unanimous.

  • Many analysts agree that the Chinese slowdown was one of the main reasons. Also, the Yuan Devaluation is part of the problem as it will push the commodity prices even lower and will keep inflation still under the Fed target. The Governor mentioned the word “China” several times, what let us think, this could likely be a strong reason.
  • But many others disagree and keep thinking that the Fed doesn’t care much about outer problems and it will keep focusing on the American economy. These analysts (Bill Gross including) explain that the main reason is the strong dollar. King Dollar keeps strengthening and this is having a considerable impact on the import prices and on the exports volume of American companies.
  • For some investors, the job market is the main reason why the Fed didn’t raised interest rates. You may have heard about a strong job market in the US and a record 5.1% jobless rate, but the Governor in its last conference underlined again, that the under employment continues to improve but it also continues to be considered still high for the Committee. The U6 figure continues to be substantially over a double digit number.
  • This summer’s market turbulence could have worried the Committee. In fact as we expected some weeks before, the over 10% correction in the stock market arrived finally. Now, that the bears have achieved their first target, the Fed looks worried about if this could turn out to be a 20% correction or even more. A rate hike at this moment, could only upset the general investor’s thought, that lower rates, always push up the stock markets (Warren Buffet confirmed this at his last interview on CNBC).

All these issues together could be the reasons why the Fed decided to delay the rate hike. The 60% likelihood of a rate hike, turned out to be a wrong calculation. And the beauty of the thing is, that this change happened in only one or two weeks before the decision. Now, independently about what analysts think, the inflation rate and the GDP growth numbers in the US, actually tell us, the Fed is still ahead of the curve.

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