The US Federal Reserve has kept US interest rates on hold overnight, citing weak global conditions, as widely expected.
As the central bank stated,
"Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate."
In simple terms, the US economy is progressing, albeit slowly, and the US Fed doesn't want to upset the applecart by raising rates too soon. We still might see a rate rise later this year, with the Fed confirming it was upbeat and would likely raise rates – but I personally don't think it will happen. Global growth is slow and weak, and unless that picks up materially, it's unlikely to provide a boost to the US economy and inflation is likely to remain low.
Canada and Brazil are in recession and both countries share similarities with Australia. Both are big resource exporters but have been hit by crashing commodity prices. Locally, we could even see the RBA cut the official cash rate below 2% to keep us out of recession.
Yes, folks, low-interest rates are here to stay for now. US rates have now been near zero for the past six years.
Those doomsayers predicting that the US Fed was going to destroy stock markets today must be widely disappointed. Wall Street indices fluctuated wildly following the announcement, with the Dow Jones down 0.1% and the S&P 500 down 0.2% heading into the close. At one stage, both indices had put on more than 1%.
What does it mean for Australia and our stock market?
We could speculate, but really it suggests that if the stockmarket follows world economic growth, we could expect the S&P/ASX 200 (index: ^AXJO) (ASX: XJO) to remain reasonably flat over the short-to-medium-term. Foolish investors can carry on focusing on buying high-quality companies at cheap prices and holding for the long-term.
