By Nelson D. Schwartz, New York Times—
The Federal Reserve appeared surprisingly hesitant to raise interest rates, experts said on Thursday, following months of anticipation on Wall Street, in Washington and in corporate boardrooms around the country that a move was imminent.
A majority of economists on Wall Street and market indicators of investor sentiment had predicted the Fed would hold off on any move to tighten monetary policy at the two-day meeting that concluded Thursday afternoon. But several analysts said the language in the rate-setting committee’s statement suggested that officials were even more cautious than they had thought.
“It felt like a dovish result with a dovish statement,” said Carl R. Tannenbaum, chief economist at Northern Trust in Chicago. “Before this meeting, there was a supposition that they’d set the table for a future move. I didn’t see any silverware in this announcement, and I think October is off the table.”
“I don’t think they are in much of a hurry,” he added. “The international situation must have generated a real re-evaluation.”
Still, other experts argued that the central bank is prepared to move as soon as global conditions improve, illustrating the uncertainty that will persist until at least the next Fed meeting in late October — or more likely until the last gathering of the year for policy makers in mid-December.
“The global deterioration has caught their attention and, clearly, that was the main factor,” said Michael Hanson, senior United States economist at Bank of America Merrill Lynch. “I don’t think this will keep them on hold for an extended period of time. Both the meetings in October and December remain live.”
Indeed, traders on Wall Street could not make up their minds Thursday on how to greet the Fed decision not to enact its first rate increase since 2006. After initially dropping after the 2 p.m. announcement, stocks quickly rallied by more than 1 percent, only to fall in the final hour of trading. Major market indexes finished the day down by about 0.25 percent.
Several analysts said they were struck by the second paragraph in the Fed’s statement, in particular the conclusion that global volatility and economic events “are likely to put further downward pressure on inflation in the near term.”
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said those conclusions constituted the major news in Thursday’s announcement.
“I’m not surprised they didn’t move, but I am slightly surprised that they were so explicit with their reasoning,” he said. “The new stuff is the recent financial global developments, and for now they are kind of paralyzed.”
Mr. Shepherdson said he expected the United States economy to continue to strengthen in the months ahead while volatility lessens in China and other markets, prompting the central bank to finally start tightening in December.
What is important to understand, said Michael Gapen, chief United States economist at Barclays, is that the Fed has concluded inflation will remain depressed, even if the other economic fallout from problems abroad is minimal.
“That’s significant,” said Mr. Gapen, who is an outlier on Wall Street in predicting that the Fed will wait until March 2016 to move. “Whether or not the risk materializes, they think it will suppress inflation, and that means they can let labor markets go a little longer without an increase.”
With wage gains still scarce for most workers, and many having trouble finding full-time positions despite a 5.1 percent unemployment rate that would normally signal employers to raise pay, labor unions and liberal economists hailed the Fed’s move as a sign policy makers see continuing slack in the labor market as much more of a threat than inflation.
“We are pleased that the Federal Reserve has kept interest rates unchanged,” said Richard Trumka, president of the A.F.L.-C.I.O. “We know the economic recovery still has not reached working families, and even a small increase can have devastating effects on our economic stability.”
Jared Bernstein, a senior fellow at the liberal Center on Budget and Policy Priorities in Washington, said he believes that Janet Yellen, the chairwoman of the Federal Reserve, is focused on how uneven the recovery in the labor market has been.
“This doesn’t feel like an economy that needs a brake tap,” he said, adding that Ms. Yellen “has been consistently, and thankfully, mindful of the absence of full employment despite the 5.1 percent unemployment rate.”
With the dollar strengthening by more than 15 percent over the last 12 months against other currencies, making imports into the United States cheaper, economic forces are quietly combating inflation through another channel, Mr. Bernstein noted.
“The appreciation of the dollar has been doing the Fed’s work many times over,” he said.
Many observers expect the dollar to continue to rise against other currencies, because of economic weakness in Asia and the relative strength of the American economy.
On the other end of the political spectrum, conservative economists and Republicans on Capitol Hill expressed worry that the longer the Fed waits to make its inevitable move to raise interest rates, the greater the threat that investors will get cold feet.
Thursday’s decision “has less to do with the underlying weakness of the economy than the timidity of the Fed to take the first necessary step to normalize monetary policy,” said Representative Kevin Brady, the top House Republican on the Joint Economic Committee. “As long as the Fed remains fearful to act lest it be blamed for any economic hiccup, market uncertainty will continue.”