US Federal Reserve Interest Rate Decision – October 28, 2015

The US Federal Reserve (“the Fed”) opted to leave its key interest rate unchanged at its current level of between zero and 0.25 per cent. In its accompanying statement, the Fed cited that inflation continues to run below the Fed’s long-run objective of 2 per cent and US economy activity was expanding at a moderate pace, hampered by a high dollar and attendant softness in exports. The Fed anticipates that it will only be appropriate to raise its target rate once the labor market shows further improvement and it can be reasonably confident that inflation will move back to its 2 per cent target over the medium term.

Most economists agreed that the Fed was unlikely to raise rates at the October meeting, preferring to wait until December before initiating a lift-off from the zero rate policy that has prevailed since 2008. A global economic slowdown since the summer has provided a significant amount of cover for the Fed to put off raising rates until it can better grasp the impact of slower global growth and a high US dollar on the US economy. The Fed also wants to be “reasonably confident” that its preferred measure of inflation, which is currently tracking at just 1.4 per cent, will reach 2 per cent over the medium-term, usually defined as about 2 years. Our modeling suggests a somewhat low-probability that inflation will reach 2 per cent before the end of 2016. If that holds, and the Fed puts off tightening longer than currently expected, key bond yields in both the US and Canada should remain low, meaning low mortgage rates will continue throughout next year.

For more information, please contact: Gino Pezzani.

Speak Your Mind