Fed’s decision on rates disappoints economists

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The US Federal Reserve has kept interest rates unchanged in response to worries about the global economy, financial market volatility and sluggish inflation at home, but it left open the possibility of a modest policy tightening later this year.

Fed Chair Janet Yellen said developments in a tightly linked global economy had, in effect, forced the US central bank’s hand.

However, James Sproule, the chief economist at the Institute of Directors, described the Fed’s decision as “disappointing”.

He added: “The big question now is how the Bank of England responds. The IoD continues to believe that this prolonged period of ultra-loose monetary policy should be called to an end sooner rather than later. The Bank of England appears reluctant to act before the Federal Reserve.”

Iain Clacher, an associate professor at Leeds University Business School, said: “The IOD’s view that both the Fed and the Bank of England are being overly cautious is correct.

“The monetary policy toolbox is pretty much empty just now and the one thing history has taught us, is that you cannot beat economic fundamentals – interest rates will have to rise.”