Fed rate hikes still on table despite market turmoil

FOMC takes more dovish tone

Laura Dew
clock • 1 min read

The Federal Reserve has indicated it may still go ahead with further rate hikes this year, contrary to industry expectations.

In its monthly meeting, the Federal Open Market Committee took a more cautious tone than in December.

It reduced its target for full employment from 5% to 4.9% and said it expected inflation to remain low in the near term.

The low inflation was blamed on the fall in energy prices but the Fed said this was "transitory" and that inflation should still rise to its 2% target over the medium term.

It was unlikely the committee would have decided to raise rates at this meeting, just one month after the first rate hike since 2006 and in the wake of a volatile start in 2016.

The first week of January saw markets in China fall by more than 7%, having a knock-on effect on the US, European and UK markets. The FTSE 100 was down 3% while the Dow Jones was down 2%.

Referencing this, the FOMC statement said it was "closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation, and for the balance of risks to the outlook".

It is expected the committee will vote for four rate rises this year and the statement made little reference to this, only noting that rate rises would be "gradual". The next possible rate rise is likely to be in March.

Chairman Janet Yellen (pictured) is scheduled to give a more detailed monetary report on 10 to 11 February.

Asian markets were down overnight following the news; the Shanghai Composite Index was down 3% while the Nikkei and the Topix were down 0.7%.

 

More on Economics / Markets

Five key takeaways from the Spring Statement 2025

Five key takeaways from the Spring Statement 2025

OBR growth, ISA reforms and defence

Sorin Dojan
clock 27 March 2025 • 4 min read
Bank of England halts interest rate cuts amid ongoing inflation

Bank of England halts interest rate cuts amid ongoing inflation

As priced in by markets

Sorin Dojan
clock 20 March 2025 • 2 min read
More work needed to tackle inflation as BoE members warn of further market turmoil

More work needed to tackle inflation as BoE members warn of further market turmoil

BoE MPC members spoke at Treasury Committee hearing

Sorin Dojan
clock 06 March 2025 • 2 min read

In-depth

MPS movers: Why Quilter, Tatton, Waverton came out on top

MPS movers: Why Quilter, Tatton, Waverton came out on top

Less launches expected as industry has ‘seen the peak’

Isabel Baxter
clock 05 March 2025 • 5 min read
Driving change in advice: The importance of visible female leadership

Driving change in advice: The importance of visible female leadership

Leveraging International Women’s Day to boost awareness of financial planning careers

Sahar Nazir
clock 06 March 2025 • 6 min read
How FCA could tackle review of 'opaque' MPS market

How FCA could tackle review of 'opaque' MPS market

Target market an expected focus as propositions have ‘questions to answer’

Isabel Baxter
clock 03 March 2025 • 4 min read