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Federal Reserve renews low interest rate pledge

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Federal Reserve renews low interest rate pledge
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The US Federal Reserve has renewed a pledge to keep borrowing costs low for a “considerable time”.

There had been speculation the Fed would raise interest rates given the latest strong US economic data. This expectation had pushed up the value of the US dollar and rattled stock markets worldwide.

US stocks got a bit of a bump from the interest rate announcement.

On the basis that Fed policymakers could raise borrowing costs faster than expected when they do start, the euro skidded to a 14-month trough against the dollar, the US currency reached a six year peak against the Japanese yen, and gold hit an eight-month low.

In the statement after a two-day meeting of its policy-setting Federal Open Market Committee (FOMC), the Fed announced a further $10 billion reduction in its monthly purchases. That means the programme is on course to end next month.

In a further sign the central bank is in no rush to start raising rates, the FOMC repeated its assessment that a “significant” amount of slack remains in the US jobs market.

“The Fed clearly signalled overnight that although it is not imminent, they are increasingly confident they will start raising rates next year,” said Lee Hardman, a strategist with Bank of Tokyo-Mitsubishi UFJ in London, speaking on Friday morning.