To hike or not to hike? That was the question on Thursday.

Markets around the world, in effect, ‘trod water’ until the Federal Reserve, the world’s de facto central bank, made its announcement on whether rates would get pushed up for the first time since 2006.

It was 50/50… but in the end, U.S. interest rates were once again left unchanged.
The Fed’s statement reads: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term. Nonetheless, the Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad. 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.”

As I was quoted as saying in The Independent and CityWire, amongst other media outlets, whatever the decision, volatility was always to be expected.  And I expect it to last until the end of the year.

But as I told the press, by keeping interest rates at historic lows, it is the Fed itself that is fuelling more uncertainty in global markets than if it had raised them.  This is for two main reasons. First, although a rate raise hasn’t happened this time, it is on its way. Therefore, the countdown clock has simply been reset. And, of course, this is a trigger for short-term volatility.
And second, the Fed is, in effect, sending out a clear message that it is nervous about China, and the impact a potential hard landing could have on U.S. and global growth.  This concern over global developments is bound to prompt uncertainty too.
Nevertheless, this inevitable uncertainty following yesterday’s announcement, will present some important buying opportunities for investors as with equity valuations essentially sound, any China or U.S. volatility linked to interest rates could be used to their advantage.  Naturally, this would be on the understanding that investors remain cognisant of market volatility and its causes, have a properly diversified portfolio across regions, asset class and sectors in order to manage risk, and are considering the impact of a market correction.

History shows us that such periods of volatility typically have provided clear opportunities for investors and those who seek sound, independent financial advice will be able to make the most of these key buying opportunities that this period will provide.

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