The Federal Reserve has finally confirmed decision to leave interest rates unchanged, citing a quarter percentage point as anticipated by many analysts. As weaker labor markets continued to weigh, the Fed’s decision was driven.
Goldman Sachs’ Asset Manager Mike Swell said in an interview that the Federal Reserve is not the main focus of the news, rather the factors of the decision are. The Fed initiates to follow the behavior of the market, including inflation, global outlook, and unemployment rates. It involves similar data as among the markets and investors.
Fed Chair Janet Yellen has completed the two-day meeting in Washington, it seemed that decision to leave rates unchanged was fueled by lower than expected labor market.
Subsequently, Yellen recently suggested during an earlier meeting that the labor market condition advances, but lowering their assessment of the labor market is necessary. However, it has marked after the meeting that the labor market condition is expected to advance for the rest of the year.
The dot-plot has been downgraded, marking six out of 17 officials were in favor of a single 25 basis point rate hike for the year.
Many still believe that markets as well are not into rate hikes as the term uncertainty has been repeatedly used in the previous FOMC meeting. Thus, decision from officials has mixed results, led by the economic condition and a sluggish job gains.
The FOMC stated, “The pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up.”
As part of the headwinds, it is likely that it was led by lower inflation anticipation, as well the consistent risk from outside of the U.S. Thus, decisions from the Bank of England and Japan’s central bank are eyed, which is expected to carry more uncertainty in the global markets.
Heightened Anticipation After Brexit
Brexit risk was also highlighted in the meeting as the referendum is expected to trigger volatile global markets. Meanwhile, analysts anticipate a potential rate hike in July, if the job markets recovered as well as if the markets remain at ease after the week of Brexit referendum.
Based on the recent data, Brexit might prompt a huge sell-off in the pound, which will send the currency down by about 11% against other major currencies.
Analysts at Goldman Sachs Silvia Ardagna, Robin Brooks, and Michael Cahill contend that a “Lehman-type” scenario – where market uncertainties are triggered as much as it did after the slumping on the investment bank Lehman Brothers in 2008.
It is believed that it might lead to a huge crash, sending the pound down, and marked it to levels that is not witnessed for over decades.