about 5 years ago • 1 min
Late on Wednesday the US Federal Reserve, as expected, left target interest rates between 2.25% and 2.5%. It offered a more “dovish” outlook, however, which is exactly what investors were hoping for… kinda 😕
Investors late last year and early this were worried about the slowing effects too-fast rate hikes might have on economic growth. But in its Wednesday statement, the Fed said it could be patient with future adjustments to interest rates – and flexible about the speed with which it undoes its quantitative easing (QE) from the last decade.
Alongside that came a slightly weaker assessment of the US economy, and an acknowledgment that global economic growth looked less certain. That's thanks to a slowdown in China and political tensions between it and the US – and between the UK and Europe. Who’d have thought? 😉
Investors saw the pause as a positive for stocks, since lower rates and a potentially slower reversal of QE should help companies grow more quickly. But investors’ buying may have been partially tempered by the weaker economic outlook in the US.
Still – global stocks are on track for their best month since March 2016:
Some investors are worried, however. If the US economy grows as projected this year and the Fed raises rates, say, twice more to the “neutral rate” – once adjusted for inflation, that rate would be much lower than in the past (about 0.5% vs. 2%). And if that’s the case, it suggests the US economy is fundamentally more fragile than it was.
All in, the US economy’s probably cutting a decent figure. But it may be skating on thin ice…
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