US Federal Reserve leaves rate at 0.25-0.50%

21 September 2016 19:43 Source:ICIS News

HOUSTON (ICIS)--The US Federal Reserve voted on Wednesday to keep the nation's interest rate at 0.25-0.50%, but added that the argument for raising it has become more compelling.

The Federal Open Market Committee (FOMC) "judges that the case for an increase in the federal-funds rate has strengthened, but decided, for the time being, to wait for further evidence of continued progress toward its objectives", it said.

The FOMC did not make such a statement in its last meeting, held on 27 July.

In addition, more committee members voted to increase rates during this recent meeting. The tally was 7-3, versus 9-1 during the previous meeting on 27 July.

In keeping the federal-funds rate steady, the Fed noted that "job gains have been solid", even as the unemployment rate has changed little.

However, the Federal Reserve changed its outlook for job growth, saying that "labour market conditions will strengthen somewhat further".

During its last interest-rate meeting, it said. "labour-market indicators will strengthen".

The Fed also changed its outlook regarding threats to the economy. "Near-term risks to the economic outlook appear roughly balanced," it said. In its last meeting, the Fed said "near-term risks to the economic outlook have diminished".

As in the previous meeting, the Fed said that household spending continued to grow strongly, while business investment stayed soft. Inflation continues to run below the Fed's 2% target, reflecting earlier declines in energy prices and cheaper imports.

The Federal Reserve last raised rates in December, the first hike since 2006.

The Fed is the central bank of the US, and it has a dual mandate to promote maximum employment and price stability.

The federal-funds rate can have several direct effects on the US chemical industry.

Raising the rate can increase borrowing costs and strengthen the value of the US dollar.

A stronger dollar makes US chemical exports less competitive.

In addition, a stronger dollar also pressures oil prices lower. US crackers rely predominantly on gas-based ethane and other natural gas liquids (NGLs), while much of the world relies on oil-based naphtha.

As a result, when oil prices fall, US producers can lose some of their cost advantage against foreign ones.

By Al Greenwood