The world’s top central bank cites low inflation and “developments abroad”, in a nod to China’s stock volatility.
The US Federal Reserve has kept interest rates on hold, shying away from what would have been the first hike in nearly a decade.
The world’s most powerful central bank said it had left the cost of borrowing at historic lows because of a weak global economy, low inflation and unstable stock markets.
The Fed’s action was approved on Thursday in a 9-1 vote.
It said in its policy statement after a two-day meeting that “recent global economic and financial developments may restrain economic activity somewhat”.
The Fed added that it was “monitoring developments abroad”, a nod to volatility in China, the world’s second-largest economy amid warnings from bodies such as the World Bank and International Monetary Fund that a US rake hike could exacerbate its economic slowdown.
US stocks ended mostly lower on Thursday after a jittery day ahead of the Fed’s decision.
Asian shares were in positive territory on Friday except for Japan’s Nikkei while European stocks fell as the Fed’s downbeat message on the world economy overcame cheer on the decision to hold fire on rates.
Fed chair Janet Yellen cited the slowdown in China and other emerging markets in a news conference explaining the decision.
While she pointed to growing emoployment strength, Ms Yellen also said the US housing market remained “very depressed” but did not specifically rule out a rate rise later this year, insisting monetary policy would remain highly accommodative after the first increase is announced.
Rates have remained fixed at ‘practically zero’ within a range of 0% to 0.25% since 2008 during the Great Recession.
An era of cheap money – to help boost lending in the wake of the credit crisis – has fuelled stock market values to record levels.
A rise would have been passed on to investors and consumers who would have paid more for mortgages, car loans and business borrowing.
Economists argue gradual rate increases are now needed to help prevent new bubbles in housing costs and stock markets.