Market watchers have received one of the strongest signals yet that interest rates are not going anywhere, anytime soon.
The U.S. Federal Reserve has held the line on its trend-setting policy rate, maintaining it in the range of 2.25% to 2.50%. The central bank also made it clear (or, at least, as clear as central banks ever do) that it will not be moving rates given the current state of the American economy.
Unlike Canada, the main sticking point in the United States is inflation. Here the economy is experiencing weak growth. The Bank of Canada blames that on low oil prices and business investment that is being constricted by global trade uncertainties. In the U.S. the economy has shaken off the doldrums that set in at the end of last year. GDP grew by 3.2% in the first quarter this year and unemployment is a record lows. But inflation is running at just 1.5%. The Fed’s target is 2.0%.
Weak inflation is seen as a problem because it tends to suppress consumer spending, which is the main driver of the American economy.
The Fed was adamant about its decision, voting 10 – 0 in favour of holding steady, regardless of political bullying from U.S. president Donald Trump. He is calling for a 1.0% rate cut and the resumption of the emergency bond-buying program known as quantitative easing.