The US Federal Reserve building in Washington, DC. While the Fed was expected to lift rates by the year end, global markets have moved broadly higher in the past few sessions, with some economists predicting the Fed would stand back from moving this month, taking into account recent China-fuelled turmoil.

AFP/London

Europe’s stock markets were flat yesterday with investors cautious ahead of the latest interest rate decision in the world’s top economy, the US.
All eyes were on what the US Federal Reserve would reveal about the outcome of the latest gathering of its Federal Open Market Committee (FOMC).
The policy meeting had been the key focus of markets for weeks as central bank policymakers weigh a healthy US recovery with a slowdown overseas, particularly in China, the world’s second biggest economy.
While there could be an initial “knee jerk reaction” if the Fed raises rates for the first time in nine years, John Higgins at research firm Capital Economics said he doesn’t expect fireworks. “Market participants have had time to acclimatise to the prospect of an increase in the cost of borrowing, which would hardly come as a bolt out of the blue,” he said.
London’s FTSE 100 index dropped 0.68% to close at 6,186.99 points, despite official data showing British retail sales rose 0.2% in August from July.
In the eurozone, the CAC 40 in Paris lifted a slight 0.20% to finish at 4,655.14 points, while Frankfurt’s DAX 30 edged up a mere 0.02% to 10,229.58 points compared with Wednesday’s close.
In Asia, equities mostly rose, with traders broadly optimistic over the rate call.
While the Fed was expected to lift rates by the year end, global markets have moved broadly higher in the past few sessions, with some economists predicting the Fed would stand back from moving this month, taking into account recent China-fuelled turmoil.
Waiting on the Fed, US stocks were also flat yesterday with most analysts betting against a rate hike.
Near mid-day in New York, the Dow Jones Industrial Average was up 0.08%, the broad-based S&P 500 was 0.09% higher, and the tech-rich Nasdaq Composite Index rose 0.24%.
In foreign exchange deals, the European single currency rose to $1.1308 from $1.1285 late in New York on Wednesday, suggesting some participants expect no change.
“US interest rates have a huge impact on the rest of the world because, not only is the US the largest economy in the world, but the dollar is used as the world’s main currency,” said Rebecca O’Keeffe, head of investment at brokers Interactive Investor. “Many other countries peg their currencies versus the dollar. Many companies, or indeed sovereigns, borrow in dollars. Most international trade flows are denominated in dollars.
“Raising US interest rates is tantamount to raising the global interest rate,” she told AFP.
When the US economy began to stall in 2007, the Fed slashed the rate in 10 steps from 4.75% in September 2007 to an unprecedented low of 0-0.25% in December 2008.
It held the rate locked at the zero level as a way of getting the economy back to health after the deepest recession in eight decades. Now that the economy is growing steadily, many believe such a low rate is no longer warranted.
Kit Juckes, global foreign exchange strategist at Societe Generale, predicted however that the Fed would lift rates to a level of 0.25-0.50% yesterday in a “symbolic” move.
“Asset prices globally have been sent higher by the extraordinary monetary policies—quantitative easing and low rates—put in place since the financial crisis,” Juckes said.
“Symbolically, a rate rise — even a small one to a low level — signals the end of this chapter in markets’ history.”