In voting to hold rates at 0.25% - 0.5% the Federal Open Market Committee surprised few people, and doing so has put the investment spotlight firmly on the 8 November election.
While the FOMC does have a meeting at the beginning of November scheduled, it is regarded as highly unlikely it would take action within a few days of an election, meaning December is now considered the earlier point a raise could come.
The FTSE 100 responded positively to the news, climbing 1.2% during Thursday morning to sit at 6920.
“The FOMC decided to keep Fed funds target range unchanged at 0.25%-0.50%, this had been expected given the slow rate of improvement in recent economic data,” said Dominic Barnes, portfolio manager at Investec Wealth & Investment. “However there was some dissent, with three members calling for a rise. The overall tone of language had firmed, acknowledging that growth had picked up, but that there was still room for improvement in the labour market. We now expect only one hike in 2016, at the December meeting. This despite Janet Yellen calling the November meeting live but, coming as it does only a week before the Presidential elections, we are unlikely to see a rate hike at that time.”
“Last night’s decision was largely expected as markets had only factored in around a 20% chance for an interest rate rise,” added Adrian Lowcock, investment director at Architas. “The Fed continues to indicate a further rate rise should be expected this year. However, Investors should take this with a large pinch of salt – at the end of 2015 the Fed had been expecting four rate rises this year.”