The Fed see’s Red
The Federal Reserve Bank last night voted 9 to 1 to keep interest rates unchanged leaving markets and its investor nervous for yet another month at least. Indeed, whilst it was expected that the Fed would leave interest rates on hold, there were still some market experts convinced that many more of the Fed committee members would indeed become more hawkish this month and vote in favour of a rate hike.
Clearly, from the tone in the statement from the Fed chair, Janet Yellen, the committee decided to leave rates at their current level based upon concerns over the recent weakness in the global economy. Ms Yellen went on to say that this persistent weakness would likely restrain US economic activity and act as a strong headwind for global growth, and of course put downward pressure on the inflation rate keeping it below the Fed’s 2.0 percent target rate. She also went on to say that the first increase in the Fed fund rate will be appropriate when they feel that there have been some further improvements in the US unemployment market.
Following the Feds decision to keep rates on hold we saw the US stock market whipsaw its way through a rather choppy afternoon session, as market traders, and global investors, continued to look for further clues within the statement as to when the Fed might actually raise rates, indeed, with only a few months left in 2015 it is now likely that we will not see any increase in interest rates until March 2016.This left the Dow Jones Industrial and wider S&P Index marginally down for the day after opening stronger on anticipation about a possible rate hike.
Meanwhile, in the bond market we saw US Treasury bond yields hit a trading session low whilst the safe haven asset class of gold rallied on the news. Equally, it was bond guru, Bill Gross, manager of the Janus Global Unconstrained Bond Fund who was noted as saying that he thought the Fed had held rates at their current level in fear that any rise in rates would see the dollar strengthen further, which in turn, could have ramifications for the US economy, and of course, those dollar sensitive emerging market economies.
And so, after so much Fed talk and hype about “will they or wont they” the dilemma goes on as the “Fed see’s Red” and volatility heightens. Never-the-less given that global equity markets have been incredibly disappointing since mid-April, and the threat of any interest rates hikes now receded until next year, don’t be surprised if we see a meaningful “relief rally” sometime soon as global investors take some of that money from the side-lines and put it back to work in the equity markets hopeful that Santa Claus will appear before the year end.
Peter Lowman, Chief Investment Officer
Peter Lowman has been in investment management for over forty years and prior to becoming Chief Investment Officer for Investment Quorum he worked within larger asset managers, primarily as an Investment Director within Cazenove’s. He is responsible for the overall investment strategy for Investment Quorum clients and sits on the Investment Quorum Investment Committee.
This article does not constitute specific advice and investors should bear in mind that capital invested is not guaranteed. Investment Quorum is authorised and regulated by the Financial Conduct Authority.