Market turmoil shifts US Fed's calculations on interest rates

Central bank holds rates and says it is 'closely watching' global markets

Janet Yellen, chair of the US Federal Reserve (Reuters)

America’s central bank stressed today that it is “closely watching” global markets in the wake of January’s turmoil, suggesting that it is likely to slow the pace of its monetary tightening.

The Federal Reserve, headed by Janet Yellen, kept its policy rate on hold after having hiked interest rates by 0.25 percentage points on 16 December, the first US rate rise in almost a decade.

Financial markets took that widely expected increase in their stride, but equities have experienced major sell-offs since the new year in response to a surge in anxiety about the Chinese economy and the continued collapse of the global oil price. There has also been a major flight into perceived safe assets such as gold.

“The committee is closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation, and for the balance of risks to the outlook,” the Fed's Open Market Committee’s post-meeting statement said. It also removed a reference to the risks to the economic outlook being “balanced”.

US 10-year bond yields fell about 5 basis points to 2.015 per cent in the wake of the report.