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Relief? US Federal Reserve maintains interest rates

The decision to maintain the rate at its original close to zero position was due to global headwinds that could slow the economy and keep inflation subdued as the central bank kept alive the possibility of a hike before the end of the year.

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Head of U.S  Federal Reserves, Janet Yellen play

Head of U.S  Federal Reserves, Janet Yellen

Ghana's $1.5 billion Eurobond may just have received a major booster as the US Federal Reserve decided  not to increase its interest rates for the first time in close to a decade.

The decision to maintain the rate at its original close to zero position was due to global headwinds that could slow the economy and keep inflation subdued as the central bank kept alive the possibility of a hike before the end of the year.

The Fed said in a statement: “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”

By a 9-to-1 vote, the Fed kept rates steady as it said that the financial market turmoil did not change its assessment that the risks to the economy were “nearly balanced,” but added a new phrase that it was “monitoring developments abroad.”

The market took the decision as a dovish decision, as the yield on the 2-year U.S. Treasury TMUBMUSD02Y, -15.95%  plunged while U.S. stocks SPX, -0.26%   zigzagged and eventually ended lower.

Federal Reserve Chairwoman Janet Yellen said the Fed considered hiking interest rates on Thursday.

“However, in light of the heightened uncertainties abroad and the slightly softer expected path for inflation, the committee judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2% in the medium term,” she said in an introductory statement to the news conference".

Brian Barnier, principal at ValueBridge Advisors, said the Fed is still getting its hands around the lack of inflationary pressure in the economy. “There has been no inflation in the U.S. economy since the 1990s in anything other than highly regulated services: health care, education, banks and housing,” he said.

The Fed meets two more times this year, on Oct. 27-28 and Dec. 15-16. With no press briefing planned in October, many analysts will push their expectations of a move to December. But other analysts argue an October move should be viewed as a very real option, and Yellen during the news conference explicitly said it could raise interest rates next month.

According to the latest so-called dot-plot, 13 of the 17 Fed officials think the Fed will raise rates at least once before the end of the year. One, Richmond Fed President Jeffrey Lacker, dissented from the decision as he wanted a quarter-point rate hike.

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