Why It Matters

Fed no-hike's grim message

The score reads 55-0, and after yesterday's Federal Open Market Committee meeting, the streak is likely to continue for a while yet.

The Fed, which sets United States interest rates and the direction of global financial markets, voted 9-1 early yesterday morning to keep rates near zero.

It is the 55th time in a row since the financial crisis in 2008 that the council of wise men and women decided that near-zero interest rates are necessary to support the recovery of the US economy.

The move meant that markets can breathe a little easier for a while longer.

Asian bourses reacted by rising, with the MSCI Asia Pacific Index up 0.76 per cent to 129.39 points.

Gold bounced up while bond yields fell, indicating that investors expect that a rate hike could be delayed even until next year.

But the message behind the move is far more important, and worrying, than the timing of the rate hike itself.

In making the decision to stay put on interest rates, US Federal Reserve chair Janet Yellen flagged external concerns as being a factor.

The recent turmoil in Asia has been a real source of concern for economic planners.

Asia, which has been the main engine of global growth for the past few years, is now entering a difficult period, with sharp outflows of funds and falling export numbers.

Coupled with Europe's struggle to get back on its feet and the US recovery on an uneven footing, the global economy faces a bleak outlook.

Singapore's exports showed a sharp drop last month, indicating that intra-Asian trade was faltering in the wake of a stuttering China.

As Citi economists said in a note to investors:

"The last time international market turbulence halted a Fed tightening cycle was 1998, when systemic risks abounded."

The market may have its day in the sun for now, but make no mistake, the outlook is getting grimmer every day.

A version of this article appeared in the print edition of The Straits Times on September 19, 2015, with the headline 'Fed no-hike's grim message'. Print Edition | Subscribe