Janet Yellen Decides No Federal Interest Rate Increase

Oil prices, risks abroad, inflation impacted decision

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Sep 17, 2015
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The Federal Open Market Committee of the Federal Reserve decided at its meeting today not to raise interest rates for the first time in nine years and instead maintain the 0 to 0.25% percent range for the time being.

The highly anticipated decision came as the committee saw economic activity “expanding at a moderate pace” and wanted to continue progress toward its mandated goals of maximum employment and price stability.

“The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad,” the FOMC said in a statement.

“Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate.”

The committee also reported it saw positive signs in household spending, business fixed investments, housing and the labor market. But exports remained soft, inflation remained below the Fed's goal of 2% driven by low prices in energy and non-energy imports and the committee held concerns about China and emerging markets.

Nine committee participants, including Federal Reserve Chairwoman Janet Yellen, voted in favor of the action, while one voted against, favoring a 25 basis-point rate increase.

An increase would likely come before the end of the year, possibly in its October meeting, Yellen said in a press conference following the Thursday meeting. She also addressed what part speculation about policy played in generating recent market tremors.Ă‚

"I think the main drivers of the the turbulence have been concerns about the global outlook," Yellen said. "That’s how I read it, but I know that there is uncertainty about Fed policy. We’re well aware that there’s been a huge focus on the decision today, and I ask you to appreciate that there are a lot of cross currents in economic and financial developments that we need to take into account in deciding course of policy."

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How economic conditions evolve, rather than the ups and downs of the markets, would affect the committee's future decision, she said.Ă‚

Many recognized value investors said the interest-rate decision would have minimal impact on their investing, or they had already prepared for the inevitability.

"Higher rates won’t alter our view of the market as a whole because we are already using a required return that is 100bp higher than we would use if we believed bonds could remain at such a low level. Not until rate increases exceed 100bp in intermediate term bonds would further increases start to impact our values,” Bill Nygren (Trades, Portfolio) of Oakmark Funds told GuruFocus Tuesday.

Howard Ward, director of growth equity at Mario Gabelli (Trades, Portfolio)’s GAMCO Investors also told GuruFocus: “Basically, a single 25 basis point increase in the lower range of the Fed Funds target is not a game changer for investors. We would not be reacting to such a change. If you were making the case that the Fed would be raising rates multiple times over the next year then that would warrant additional thought. That is not in the cards, however.”

Read more about top value investors' thoughts on interest rates and investing here.

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