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Fed Kept Interest Rates Unchanged

As it was expected by majority of players and analysts – Fed kept interest rates unchanged for some time on yesterday’s meeting. Weekly debates within committee have finished with neutral step. More attention attracts not the fact itself, but covering speech by Janet Yellen.

At the moment 13 of 17 members of committee see rates to be raised by the end of the year, while in June votes were divided between 15 and 17. Decrease by 2 votes is not a significant signal to expect changes, but some decrease of assurance in necessity of this step is visible.

There were also mentioned concerns on instability of financial market for the last time and misbalance in world economies. These factors can negatively influence economic activity and reflect on downside pressure on inflation in short-term perspective. This concern is not surprising – uncertain recover of economic climate in the world may ricochet to the US economic well-being. Focus of the committee’s majority on toughening monetary policy in this year demonstrates that such concerns are not a fundamental obstacle and may weaken in the nearest future.

Steady improvement on labor market serves as optimism for Fed. This causes reduction of untapped forces in economy, which serves as a driver of inflation growth. Unemployment rate for August became even less than expected – 5.1%. Fed’s committee expects to see this level in long-term perspective. It was also stated that since beginning of this year labor underutilization had been decreased.

Now Fed defends stability, not allowing strong dollar, turbulence on stock markets and problems of China’s economy cause strong misbalance in the US economic development. Strong dollar disturbs normal development of export and puts pressure on import prices. This leads to a slowdown of inflation. As soon as proofs, that situation will not influence fundamental economic perspectives, are received, it will be a signal to raise rates.

In long-term specified hike of rate was indicated as 3.5%, earlier this rate had been 3.75%.  Average forecast by the end of 2015 is 0.375% that is lower than July’s forecast, which was 0.625%. Forecast for 2016 is 1.375% now, in July it was 1.625%. Also forecast for 2017 has been reduced to 2.625% against 2.875% in June.