Fed Keeps Interest Rate Steady, Preserving Job Growth

The Federal Reserve announced on Thursday that it is keeping its benchmark interest rate at or near zero, allowing job growth to continue unhindered.

The Fed’s federal funds rate -- the interest rate the Fed charges for banks to lend to one another overnight -- will remain at target rate of 0.0-0.25 percent, where it has been since December 2008 at the height of the financial crisis. The Federal Open Market Committee (FOMC), the central bank body charged with adjusting key rates, will have its next chance to adjust the influential interest rate when it meets again on Oct. 27 and 28.

By leaving the key interest rate untouched, the Fed is deliberately maintaining economic demand by preserving the current low cost of credit for consumers and businesses. If the Fed had raised rates, it would lower demand for goods and services, which in turn would reduce demand for workers and slow job growth. Fewer available jobs means less competition for workers, limiting wage growth.

The decision to postpone a rate hike was not unexpected. Some Fed officials have been indicating for weeks that fears about China and other emerging markets that spurred August’s stock market losses were giving them pause about a September rate hike. William Dudley, president of the Federal Reserve Bank of New York, expressed those concerns in remarks he made on Aug. 26, calling a September rate hike “less compelling” than it had been in the weeks prior.

The news will likely reassure anxious investors and prompt stock prices to rise. It guarantees another month without more expensive credit and the dampening effect it would have on trading, however minimal. 


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